Retirement and pensions: Where to now?

Posted on: 18 April 2012 by Anthony Page

Low annuity and interest rates continue to impact on pensions and savings as the future remains bleak for those in, and preparing for, retirement.

retirement incomeI wonder what the world’s press and media would have written about these past four years had there been no global financial crisis?

Whatever it might have been, it could never have matched the ever-changing financial patchwork we have seen unfolding these past years. It will be the historians who will make final (but varying) analyses’ on the impact on society and economies around the world. Very few have escaped the effects and most have suffered one way or the other. A few have prospered (one man’s loss is another’s profit!) but all in all it’s been seriously bad.

Older people have suffered with low annuity rates on pensions and low interest rates on savings. Although, this morning commentators on the news channels implored the government to do something to alleviate these unexpected financial pressures. How they achieve this, I don’t know as the damage is done. Capital spent is capital gone.

After the initial collapse of Lehman Brothers and Northern Rock many thought there was no worse to come. Oh, how wrong they were! Sadly, there is still more bad news in the pipeline. As four years have now passed, we are beginning to see potential changes in governments – France has elections in a few weeks and the USA goes to the polls in November. We have already had new governments in Spain and Italy – where they are now trying to sort out the ‘so called messes’ of the previous incumbents.

French elections are touch and go for Sarkozy although the socialist party led by – Francois Hollande says it will stick with the economic measures in place. There is a third contender Jean-Luc Melenchon who is a communist and says he will scrap the lot and a 20 percent increase to the minimum wage! This could be a vote winner!

That will really get the money markets running for cover!

In Italy and Spain the going is getting much tougher – both are finding it hard to get borrowing in the international markets and are having to pay away 6%+ to secure  long-term funds in the bond market (compared to the UK  10-year bond rate of 2.5%!). For Spain, this is an unsustainable expense. A and will simply add to the need for more cuts and austerity! Greece is still the basket case it was and is likely to be for decades to come – pre-supposing that it will survive as a Euro currency country, which is far from certain.

The uncertainty and instability of the past four years has damaged market confidence to such an extent that the fall out will be felt for another three to four years! As a consequence, interest rates will remain low certainly well into 2014.

While these problems prevail, the situation in the UK is unlikely to improve – some pundits are forecasting UK unemployment to rise above three million by the end of 2012 and that will be the worst since 1982.

British industry leaders have lost confidence and won’t open up the strings of their very full purses and invest for the future. They see no point in taking the risk and prefer to keep hold of the money and wait for others to take the initiative. The rising value of the pound against the dollar is not going to make it easier to export anyway– to get our exports going we need a weaker pound not a stronger one.

British consumers have little or no money to spend and what they do have they are hanging onto for the inevitable rainy day.

The real problem in the world is that nobody really knows what to do to get the machine rolling again. Though recessions have happened before, never has a downturn been so influenced by the technology, which banks and markets now rely on to function. Decisions that can wreck an economy are now made in nanoseconds – often by algorithm rather than human insight. In the good old days, it took minutes and involved real people, experience and judgement.

Even if the world suddenly brightened up there is still the question of the overall stability of the banking system. Many experts believe there are some nasty ‘things’  hidden in the balance sheets of most banks mainly to do with the high level lending on commercial properties around the world in the 1990s and 2000s.

So what is the advice to those of us who can’t do anything to change the world and it problems? Reduce your cost of living as best you can and shop clever (remember inflation was still running at 3.5% in March). This lingering storm will be felt for years to come and if you are retired, you should plan not to see material improvement until around 2017. Those of you who are still working – stay in employment for as long as you can and keep doing the Lottery – you never know it might solve all your problems.

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