Pensions have long been one of the most effective ways that people can ensure that they can provide for themselves in retirement, and have now existed for many decades. However, the current economic climate and an ageing population are now posing an ever potent threat to the sustainability of pensions, which may have many people worried. As such, here are some considerations about the current state of pensions and their potentially uncertain future.
The state pension is undoubtedly one of the most endangered pension types. Given that it is funded entirely by the state, the ageing population of the UK means that the cost of providing such a pension is likely to increase astronomically in the years to come.
Currently, it costs the taxpayer around £100bn, but this could increase to £400bn by the 2050s. As such, the state pension will undoubtedly require a rethink in the coming years, and it could well disappear altogether if measures are not put in place to protect its sustainability.
Entirely different to state pensions, workplace pensions are usually seen as far more robust than the state pension, given that they are paid for with employee salaries as well as employer contributions (known as defined contribution pension schemes). This means that, as long as employers can afford to match employee contributions, they should be fairly safe.
However, given the uncertain economic climate, as well as the ageing population, private pensions could also face new challenges, and millennials may well have to bear the brunt of this. In order to protect their employees’ futures, businesses may have to rely on the support and advice of specialist firms like Hymans in order to set up a bespoke retirement plan.
For those in low paid, unsalaried jobs, who may have to rely on the state pension when they are older, the future is undoubtedly worrying. It could be the case that state pensions will be reserved for these types of workers whilst those with private pensions may no longer receive a state pension when they retire.
It is likely that the retirement age will continue to increase in the years to come in order to offset the problems of an ageing population, and even the way private pension schemes work may have to change.
Pensions are safe for now, but the potential problems of the future will not go away unless effective measures are found soon to deal with them.