Is this the answer to our state pension problem?
PUBLISHED: 11:14 05 August 2019 | UPDATED: 11:14 05 August 2019
Taking responsibility for our personal finances will become increasingly important over the coming decades, says Peter Sharkey.
The debate over whether adults should be responsible for their own actions intensified this week after one high street bookie was fined £5.9 million, in part for failing to "prevent customers suffering gambling harm" between November 2014 and October 2017.
Upon reading this news, I calculated that the three Grand Nationals contested during this period resulted in personal losses of £60 (I seem to pay for all four £2.50 each-way family bets on race day) and gave some thought to dropping the Gambling Commission a line to see if I'm entitled to recoup my sixty quid.
Of course, I have no intention of doing this. I'm a grown man responsible for my own actions and behaviour; I enjoy having a bet on the National and limit my annual stake to around £20, although I recognise there are people who cannot do this and require help.
The notion that individuals must become personally accountable cannot be dismissed or ignored, especially as taking responsibility for our personal finances, in particular pension and retirement income, will become increasingly important over the coming decades. This might sound a tad melodramatic, but it isn't because state provision, in its current guise, will be significantly reduced.
The gradual erosion of state pensions will have a long-term impact upon tens of millions of adults, the overwhelming majority of whom will discover that the obligation to provide for their old age shifts, over time, to their shoulders. Moreover, there'll be no equivalent of the Gambling Commission to which people can complain about the perceived unfairness of it all, though in time, a tiny proportion of retirees will be entitled to a small, means-tested state pension.
A multitude of factors account for Britain's burgeoning pension conundrum, but of the two most important, one is the result of significant medical and environmental progress; the other is attributable to what, with hindsight, was a decision made by well-meaning politicians and their advisers who couldn't have possibly anticipated the first.
It's an astonishing fact, but UK life expectancy has risen, on average, by between 2 and 3 years every decade since World War II. A combination of prodigious medical advances, better housing, more nutritious food and an improved environment explain why we're living longer. This is the good news.
The bad news concerns our state pension system, established not to invest National Insurance contributions, but to pile the cash high and pay it out to folks upon their retirement.
This system works when you have considerably more people contributing to the cash pile than drawing from it, but it begins to crumble when the balance shifts and the number of beneficiaries starts to catch up with the numbers of those contributing to it. As the innovative Pension Clock shown on the Moneymapp website highlights, the current cash pile is scheduled to run out in April 2033; that might sound a long way off, but it's less than 14 years away.
Can we successfully tackle our pension time bomb? If the process starts soon enough, then the answer is 'yes', although it will not be a painless exercise.
For a start, future governments will be forced to continue raising the pension age, simultaneously cutting back on universal state pension provision; the small minority (perhaps 10pc of retirees) entitled to a state pension will be means-tested.
Auto-enrolment will become compulsory and both employer and employee contributions will increase. Future state pension provision for people aged 35 and under could be scrapped if the government of the day made saving for pensions easier - perhaps by refunding their NIC contributions and paying them into NEST.
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It goes without saying that people will be expected to work for longer, in many cases for perhaps another ten years after the official retirement age (plenty of older folks would welcome this), while a commitment must be made to improve the appalling levels of financial literacy currently evident across all ages.
Perhaps the most important factor which will ensure we successfully address the nation's pension conundrum is personal responsibility. Making our own provision for retirement, whether that be saving into an ISA, creating a SIPP, contributing more into a workplace pension, releasing equity from our homes or a host of other methods doesn't matter. Starting the process and sticking with it will ultimately pay dividends.
THE WEEK IN NUMBERS
The volume of unconditional offers made to prospective students by universities rose by a staggering 2,440% between 2013 and 2019. Six years ago, a still enormous number of 2,985 unconditional offers were made; this year, the total soared to an eye-watering 75,845.
Facebook has agreed to hand over a total of $5 billion (£4.06 billion) to US regulators in order to settle its case relating to the Cambridge Analytica scandal.
According to a group of 'Concerned Manchester United fans', at the current rate of loan repayments it will be 158 years before their esteemed club is debt-free. United's owner's borrowed £660 million to buy the club in 2005; in the intervening 14 years, just £44 million has been repaid.
For more financial advice, check out Peter Sharkey's regular column, The Week In Numbers.