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Pensions and postmodernism

The good old days of pensions are behind us and we need to adapt retirement planning to the new reality

Over the past four years, we have been in the grip of a world economic crisis that has ebbed and flowed as governments, regulators, the financial press, consumers and advisers have tried to learn the lessons of the 2008 credit crunch and the consequences.

It is generally accepted this is a short-term crisis but there is also an unspoken assumption that once the storm is weathered it will be back to the good old days.

It has not been taken on board how profound many of the longer-term changes wrought by these events are likely to be and, on many fronts, there will not be a return to the good old days.

I am most concerned about the effect on retirement planning as long-term demographic changes are affecting the viability of many long-held assumptions about pensions.

People are living longer and the age structure of the population is changing, with a smaller number of people working providing the tax revenues to fund a bigger population of pensioners. Furthermore, the standard of living expected in retirement has continued to be raised by increased longevity.

A recent Schroders survey of 1,400 affluent investors across Europe shows that UK investors are more than three times more likely to want a high standard of living in retirement than to retire early.

These ongoing demographic problems have been compounded by an extended economic and credit malaise affecting all levels of participation in the delivery of retirement planning solutions.

Governments and employers across the developed world are not going to be able to deliver anything like the benefit promises that were made in the good old days. The net effect will be to pass increasing levels of responsibility on to individuals to cater for their own retirement planning.

If this is the case, what needs to be done to ensure we establish a more realistic retirement planning system?

There are several key ingredients needed for a successful modern pension system based on individual responsibility.

From an early age, we need to educate and train people to include retirement planning as a basic life skill. Just as maths and English are mandatory, so too should a financial education with a focus on the challenge of retirement planning. Much has been spoken about this but the pace of implementation is glacial and needs acceleration.

In addition to education, the habit of saving should be encouraged and promoted. Tax incentives should be widened and made meaningful to all and not just for the highest-earners.

Elements of compulsion should be implemented. As much as individual responsibility implies personal choice and decision-making, there is a strong case for a minimum level of compulsion in retirement contributions, while reiterating this minimum level is not in any way adequate.

Financial advisers play a key role in helping people make decisions and in keeping them focused and motivated.

The growth of the internet and technology has enabled people to take a more proactive role in their own financial planning. Ensuring there is a range of quality self-help platforms, tools and education programmes would seem a worthy role for any regulator.

Outcome-oriented investment solutions should be available as part of any investment-led contribution to providing for long-term security.

The good old days will not return so it is up to those in authority to construct a new structure that provides a framework for tackling the challenge of modern retirement planning.

Robert Noach is head of the global financial institutions group at Schroders

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