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Have you heard of UGen? No, it’s not a nuclear energy company or a bonkers cloning laboratory; you probably are UGen.
Annuity provider MetLife has coined the term UGen – or Uncertain Generation – to refer to people born between 1961 and 1981 whose finances are being squeezed by two generation, or who will begin to feel a vice-like grip on their money from two groups of people with very different needs.
The first group is the children. UGens can expect to shell out a lot for their children, including huge student fees (which are threatening to top the ludicrous sum of £9,000). They can then expect the children they thought had flown the nest to return to the family home after finishing their degree, because they can’t get a job or the job they have doesn’t pay enough to cover the rising cost of living.
And then what? Well, if the bank of mum and dad is still feeling generous and hasn’t run out of reserves Little Johnny and Jane could be asking for an advance on their inheritance to buy their own property and hopefully fly the coop for good.
It’s enough to chill any parent's blood, but a situation that many find themselves in these days.
And it doesn’t stop there. With people living longer in retirement, pension pots are being stretched like never before and we could see elderly parents turning to their grown up children for help with income or long-term care.
This drain on resources is making it hard for the UGen to find the money to fund their own retirement – they're getting increasingly uncertain about what to do. A survey of 1,067 50-year-olds earning £50,000 or more a year are facing individual pension gaps of between £200,000 and £650,000 – the difference between what they have already saved and what they need to support the retirement they want.
The ‘magic number’ for pension pots stands at somewhere between £500,000 and £1 million, meaning you need to save this much in order to have a decent retirement. Very rough calculations show a pension pot of £100,000 would only provide you with an annual income of about £6,000 in retirement, whereas a pot of £500,000 would generate an income of £30,000.
Around 868,000 people will turn 50 this year and a number of them will be wondering exactly how to tackle the problems of being sandwiched between two skint generations.
When things get this bad it has to be every man and woman for themselves; the UGens have to prioritise their own savings and eventual retirement.
It won’t make you popular but failing to save will compound the problem – the next generation will end up paying for your retirement anyway through higher taxes and fewer benefits, they might as well learn some tough love now.
Comments (12)
Six thousand pounds is on the optimistic side for a pot of 100 K. Quantitative easing since 2008 has hit the value of annuities by 25% and there is more on the way. And of course Osborne is threatening to follow Gordon's example and raid citizens' provision for their future, through higher taxation (eg on the tax-free lump sum). The economically rational response to these perverse incentives is for individuals not to increase pension provision, but to stop saving altogether and enjoy whatever surplus they may have now and rely on providence (aka, the state and the kids) for their future support.
19:03 on 22 February 2012
Also remember that the 6k pension quoted for a 100k pot is a flat annuity with no annual increase for inflation.
19:18 on 22 February 2012
£500000 will only generate about £22000 income
19:20 on 22 February 2012
The reason why we pay these enormous taxes is so the State can support us in our old age...........
20:38 on 22 February 2012
I wouldn't bank on the state for anything if I were you.
20:45 on 22 February 2012
These numbers look optimistic - more like 4.25/100k which means 21/22 for 500k.
Now just how many people can lay their hands on that these days?
There are some former prime ministers who should be brought to justice for their gross negligence!
22:45 on 22 February 2012
An essentialy sane article, but not the whole picture. Britain was an industrial country but we have now stopped manufacturing a significant volume of trade goods. We measure our economy by what we consume, not by what we produce. Our balance of trade remains steadily in the red, and has no obvious prospect of improvement. The result of this is that the British economy is process not of cyclic change but of permanent decline. We are not entirely alone in this, the situation in the USA and in much of western Europe is quite similar.
We are in an Orwellian nightmare in which our politicians engage permanently in diversion tactics, minor wars in foreign parts, and ineffective posturing over financial and social issues, all in the hope of reward at the ballot box. Full systemic analysis is avoided, gut instinct and beliefs unsustained by evidence rule the day. Policy is determined by popularity, not by effectiveness.
The objective of saving for a pension is to transfer present day entitlements through to a time in the future when they are needed. The problem is that with the entire rationale of our economy eroded there is little certainty as to the effectiveness and safety of the transfer. It is not certain that any specific sum of money, at todays values, will transmute into benefits of equivalent real value for an old person in the future. In fact, for demographic reasons it is unlikely that it will do so. The best that can be done is to ensure that savings are well diversified in form and geography in the hope that some parts of the mix will experience less attrition than others.
There are no expert financial advisors out there that know the best answers. Experts can give good guidance on the present and on the historical record as well as on the immediate levels of risk associated with different investments. They cannot see into the future however, and projection from history is not in itself likely to be helpful when the entire economic model is in a state of flux.
The conclusion is that to attempt to ensure a level of benefit, whether through level annuity, index linked annuity or planned drawdown, it is prudent to plan to save rather more than the figures suggested in the article. The real value of the pension 'pot' will quite probably suffer some attrition over time however it is invested.
One positive element not mentioned is that the state pension entitlement, while probably insufficient on its own, does provide a useful supplement to other pension income.
The inept manouverings of the Bank of England and the Treasury will clearly do nothing to improve the prospects for the economy. The only proven beneficiary of QE so far are some of the financial service providers. When the bank of England buys treasury debt (gilts) in a closed auction with approved institutions it transforms one form of financial instrument into another of about the same value. It is questionable whether the Treasury debt held by the BoE has any intrinsic value because it cannot be sold back into the gilts market without collapsing the market. If and when this bubble collapses we will be in real difficulty.
So the message is, if you don't save for the future in one way or another life will become uncomfortable. If you do, there is no certainty that your savings will live up to their projected value in terms of the goods and services you will need in the future. But you are likely to be better placed than if you have not saved. Happy saving!
00:51 on 23 February 2012
I worked for 28 years for one company after my engineering apprenticeship up to the age of 50 when I took a very good offer of redundancy with early retirement. I was in a final salary scheme and so had 28/60's plus I paid in my taxable redundancy pay to top it up even more. I then took another engineering job which had a Private Personal Pension Scheme. I initially did not join this scheme as I thought I would only be working another year or so but I really enjoyed the job and stayed for nearly 14 years and I retire at end March. I did join the pension scheme and I am very glad I did as I have managed to save/invest to achieve another £140k pension pot.
I am currently getting Annuity Quotes for the £105K (after 25% cash lump sum) and it does seem that I will be able to achieve somewhere around the £5.5 to £6K mark with my wife receiving 100% after my death. I could go the drawdown route but for me it looks too risky and costly in fees. Some of you financial guys may be able to make it work but I want to spend my time on other things.
My point here is that everyone should save all they can, yes rates are not good but they are a lot better than nothing.
I was fortunate in getting in 28 years on a final salary scheme, many didn't and will not have that opportunity but in my view that makes it even more important. My children are all saving for retirement with my strong encouragement, it is the only realistic way if you do not want to spend it sitting in a chair with no money, waiting for God or whatever comes after.
08:53 on 23 February 2012
Thanks to Pilgrim for the most considered and balanced summary of the financial difficulties facing retirees. Peter Young Engineer also gives some solid advice about saving, but these virtues are in the process of being destroyed rapidly. For example, occupational pension schemes of the type Peter belongs to are in their death throes through the cynical manoeuvrings of the politicians - future generations to whom Michelle McGagh's article refers will never enjoy those benefits. Further damage to retirees is only a stone's throw away, with the proposal (from this heavily Left-leaning Coalition government() to tax the lump sum coming from a retirement pot, and the re-emergence of the "mansion tax", as though house ownership had not already been taxed out of existence. What I can offer is the suggestion that those with some money saved should seek qualified financial advice - disregard the Press hate campaign which writes only about the scoundrels - because there are plenty of them who will do an honest job. I should know, I was one until I retired two years ago!
11:44 on 23 February 2012
HMG seem to have declared war on private pensions. There seem to be changes to caps/allowances pretty much every year (some of them even retrospective) constant fiddling with drawdown rules and GAD ratios, threats of taxation to "tax free" lump sums, changes to IHT rules, and much more.
The government needs to set down a written "bill of rights" for pensions, those rules that will not be broken EVER. Being able to put what you want, when you want, into your pension pot without being taxed should be first, followed by the 25% lump sum being inviolable.
I'm sure we can think of more!
09:09 on 25 February 2012
My view is that you should use your full ISA entitlement before saving into a stakeholder/SIPP or whatever pension plan. From April this will rise to £11280 per person or £22560 per couple. If you are in the fortunate position of having excess cash you wish to save above these limits, then contribute to a pension.
I appreciate you lose the tax relief on the way in, but the flexibility of an ISA and the fact the money comes out tax free are major plus points. Higher/top rate tax payers could argue the 40/50% relief may swing the argument; quite so but they are probably contributing the maximum to ISAs anyway. Such relief seems likely to disappear before too long anyway, maybe starting with the budget next month.
The other pension plus point about the fact that you can "raid" the ISA cash whenever you're a bit short, unlike a pension is of course true; however it needs self discipline to ring fence the amount saved for your retirement years and ignore any temptation.
09:42 on 25 February 2012
The best comments I have read about any topic so far - especially from 'Pilgrim' who highlights the problem of almost Nil big employment or contribution to minimising our Trade Gap arising from Manufacturing - why - almost siolely because of abolition of Quotas and Tariffs ie Free Trade - which has mainly involved UK Companies uplifting Factories and placing them abroad. Now we are vastly over populated and supporting a load of over subsidised hangers on - an awful lot from Overseas .In addition our unemployment millstone is increasing due to the influx of EU workers forced here because of no employment in their Countries - much better workers than their English counterparts (thus denied jobs) - there are also (to my certain knowledge) a lot of EU citizens coming to these shores simply to claim benefits.
To me there is no way out - to clamp down on Benefits to the degree needed would cause Left led riots. What is Government doing? Taking the easy route - more taxation , selling whatever Assets we have left until eventually there are no more avenues and we are well and truly bust.
Talking with Politicians I find depressing and I would not excuse them by even suggesting they all know the situation and are simply preserving their jobs - the ones I have met are simply thick - but good talkers.
Personally, I see the situation atrising soon when Pension Schemes will no longer be able to pay COL increases (due to low income , a lot due to QE) because their Companies will run out of resources - this will compound with dividends reducing etc.
The whole western world is heading to bankruptcy but Free Trade cannot be switched Off because China now holds the Purse Strings.
I wish I knew the answer but I would make a start by cutting out Overseas Aid and unilaterally dramatically cutting our contribution to the EU - which needs to collapse and be supersed by simple Treaties and Agreements.
I suppose the greatest threat, were it not for Germany would be wholesale Inflation deliberatly generated.
11:47 on 25 February 2012
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