There was something quite extraordinary about last weekend’s pensions protest outside Parliament: joining those near retirement age were also hordes of young people – 25 to 35-year-olds already saddled with student loans, mortgages and credit-card debt – who can see no way of paying off their debts and providing for their old age. And their worries are understandable, says Ian Cowie in The Daily Telegraph. Faith in pensions is at an all-time low thanks to a combination of misselling, poor investment returns, low annuity rates and a £5bn-a-year pensions stealth tax. At the same time, many firms have closed final salary pension schemes and replaced them with money-purchase, where the money you receive in retirement is at the mercy of stockmarkets and annuity rates. As a result, only one in four of us is saving into a pension scheme. But the protesters should not look to politicians for help; the only way out is to start saving more – now.
If you think you’ve covered your back by property investments, think again, says Deborah Hargreaves in the FT. The Pensions Policy Institute (PPI) has warned that few people have invested enough in property to make it a substitute for pension saving. And those who believe house prices are more stable than pension funds are overlooking the fact that pensions have outperformed property since 1970, according to the PPI, largely because of the late 1980s housing slump.
So if property’s not the answer, what is? The stakeholder pension is one way of boosting retirement income, says David Prosser in the Daily Express. Take up may have been low, but that is due to lack of marketing; this does not detract from the benefits of the product. Contributions of a maximum £2,808 a year are topped up by the Government to £3,600 for basic-rate taxpayers and charges are capped at 1%, although this is set to rise to 1.5% in April 2005, so it might be worth buying before then.
These plans have performed well of late, says Money Management: the worst stakeholder may have produced a fall of 43% over the past 12 months, but over the past three years the best ones are up almost 35%. If you have a company scheme, whatever its flaws, it is also worth joining thanks to employer contributions, says David Budworth in The Sunday Times. But although you should rely on a pension scheme for the bulk of your savings (just think of the 40% tax breaks for top-rate taxpayers), it’s also worth saving via Isas. You can only save £7,000 a year into them, but they boost your income and give you more pension freedom as they don’t oblige you to buy an annuity.