I have read some fascinating articles of late, and heard different people, all claiming that our pension system is broken. As a father of two children our children are today not going to school because teachers are striking over a number of issues but one of these is their pension. I thought about this, on one hand people are saying our pension system is broken and on the other we have a minority who don’t appreciate what they have.

In this blog I just want to explore whether our system is broken or whether our expectations need adjusting. Only twenty years (perhaps less) ago our expectation when agreeing terms for a new job was that we would have a guaranteed pension at retirement. Many private sector companies offered these schemes especially in the financial sector. Fast forward to today and very few private sector employers offer these schemes and really the only way to get this type of scheme is through the public sector.

The other thing I remember was that for some of the private sector pensions you didn’t have to pay for the benefit. So effectively in many of our lifetimes we got as part of our employment a free guaranteed pension.

For those unfortunate not to have a gold plated pension they saved into a pension to provide for their retirement. Often with no real knowledge of what that would provide. The expectation of what they would receive was always based on the past. I remember as a rule of thumb £100,000 pension would provide £10,000 pension

Fast forward to today and there is only now a realisation that people are living longer (20 years plus in retirement) and this means that retirement income has to last longer. Of course pension schemes have to move their retirement age and increase contributions otherwise they cannot afford to pay the benefits but equally individuals who don’t have these schemes have to take on this responsibility.

If we focus on the fact that the pension system is broken I think that is just one element. The key as I have argued a hundred times is that of understanding what our expectations are in retirement and how we are going to achieve this. The new state pension is a great starting point especially for working couples; this gives a solid base of £7,000 plus each at age 67. An ISA can deliver a tax free income in retirement, and a pension fund can be part of the mix. Of course these are not the only sources of retirement income; for example buy to let property can deliver an income.

My point is this whether you are in gold plated pension scheme or not the first step is to accept that the norm that we knew has changed. This means that for many of us we have to work longer, retire later and pay more for our benefits. To avoid disappointment we need to be thinking about what we need in retirement and how we are going to achieve this, and more importantly we need to understand that pensions are not the only source of retirement income.

In summary I don’t think there is a problem with the pension system, I just think we need to adjust our expectations of what to expect in retirement, when this will be and how we fund this.


NOTE: This is written in a personal capacity and reflects the view of the author. It does not necessarily reflect the view of LWM Consultants. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog and the reader should accept that by its very nature many of the points are subjective and opinions of the author. This is not a recommendation to buy any product or service including any share or fund mentioned. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.