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Think tank says pensions will cease to exist by 2050

Michael Johnson

The Centre for Policy Studies think tank is predicting private pensions will cease to exist by 2050 as young people shun retirement savings they cannot access for years.

Centre for Policy Studies research fellow Michael Johnson (pictured) told the Daily Telegraph he believes 25-34 year olds should be encouraged to save into easy access Isas rather than pensions.

Johnson told the newspaper: “Pensions will cease to exist before 2050. I do not say that lightheartedly. They will cease to exist for a variety of reasons but the one at the top of the tree is if you go and talk to people in their 20s and 30s today the word pension does not resonate with them.

“It is such a distant concept in terms of [young people’s] ability to afford putting funds aside for a pension that the next cohort of the pension customer base is not going to materialise.”

He argued against young people being auto-enrolled in their workplace scheme unless their employer is making a “sizeable contribution” and they pay 40 per cent tax.

Johnson said: “In time, demand for pension products will diminish. This will hasten the demise of the tax relief, which will accelerate the contraction in demand.

“The fundamental problem with pension saving is if you are someone who is 25 today, it is going to be 45 years before you can touch it. That is just insane, particularly when you are struggling with very high housing prices and college debts.”

He added: “The long term objective for youngsters is to aim to be a debt-free homeowner when they reach retirement. Nothing else.”


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There are 17 comments at the moment, we would love to hear your opinion too.

  1. So the 20-30 year olds are not interested in pensions.

    Could I suggest the reason they are not interested is that the small IFA who previously would have been paid a reasonable commission which made it cost effective to see individuals in this age group and convince them that they needed to start a pension, basically can’t carry out that task anymore and remain profitable.

    Stakeholder – Great idea. NEST – the hits just keep on coming!

  2. Great idea – get all the kids to save for retirement by using ISAs instead. Then when they want to move house they can access the money for that and start again. Oh and when the 3D Plasma needs replacing they can cash in those ISAs again. Then there is the holiday plus the new car – lets access those ISAs – good job they didn’t lock their money up for 45 years!

    I have every sympathy for youngsters with no access to DB schemes any more. They have loads of financial pressures from Uni fees to huge first time home costs – but all this does is re focus on strategic financial planning. If a 20 year old is going to weant income when they stop earning and if that is likely to be 45 years later then starting to save for that is a good idea. Just don’t pile everything into a 45 year strategy – save for the wedding and the plasma and the 1st home as well – or if that’s not possible – prioritise.

    But don’t let them kid themselves – if the fact that you can’t access the funds for 45 years is a problem then don’t save for retirement – save for something else – but know what you are saving for!

  3. I jeard this Michael Johnson talk at a pensions seminar in Dublin once. I don;t understand how one person can be a think tank and how he seems to have som much influence. He is not a very impressive individual and likes the sound of his own voice.I am amazed that so much of what he says is listened to and never questioned. He has a complete disdain for the opinions of anyone else and I thought he was rather arrogant. He only seems capable of saying what we can’t and shouldn’t have. I agree that pensions will need to change and they will adapt. It is a shame he doesn’t think a little more radically about what one could use pension money for and how it is accessed. I find most of these pension experts to be very poor at thinking outside the box.

  4. What’s changed? When were young people ever interested in private pensions? When were such pensions ever much of a deal for standard rate taxpayers?

    Normally, young people were only members of private schemes when these were Group Pension Schemes. All that most could look forward to was to receive their own contributions back when they became a so-called ‘early leaver’.

    Some did manage to transfer to a new employer’s scheme but suffered a diminishment of their years of service on transfer, which was brought about by the general wage inflation that had taken place during the time that they had been employed in the first scheme.

  5. You may as well ask a 4 year old about what the world will be like in 2050, what joke, no one can predict what the world will really be like in 5 years from now, whether civilization as we know it now will still even be functioning, let alone in 2050 lol.

  6. @JF, comments like yours make me cringe, you sound like an desperate estate agent!
    Whilst I agree people should save for a rainy day, it is how we go about it that is the problem.
    Kids today are savvy enough about being stitched up at an early age, why should they have yet another huge mountain to climb? When they see people come in to this country with nothing and yet be given everything on a plate? Just where is the incentive for youngsters?

  7. I totally disagree with this view – it is a question of educating younger investors about the merits of making pension contributions – 85% of my business is geared around pension planning and the bulk of my clients are in the younger age bracket – once the ROI through tax relief is explained as well as the rationale for saving for a future retirement, and not relying on State pension, the penny begins to drop…I am always the first to say that setting up a pension is not a miracle solution to securing a safe income at retirement, but should be seen to be one of the many ‘buckets’ available i.e. ISA’s, other sources of income such as rental etc….explaining the merits of starting young (eg. show how setting up a Stakeholder for a new born child can grow to a tidy sum through compounding) & showing realistic illustrations based on index-linked contributions over the years, then it starts to become real…Michael Johnson is entitled to his views, but if we do not educate our clients properly then we are all doomed – pensions form the crux of financial planning & the government must to everything in its power to continue supporting the initiative. Lastly, I would add that most clients who come to see me are already very well aware of why they need to set up a pension – these are all young working professionals – perhaps Michael is referring to those on the dole or with poor qualifications who will never have the earning power to save, but this has always been the case – the middle/upper strata definitely understand the merits and it is our responsibility to make them understand these and help them through the years of contributions…perhaps pensions need to have more sex appeal generally (and this could be done for starters by changing the name…), but that is an altogether different discussion….in the interim, pensions are definitely here to stay!!

  8. I agree with the sentiments of this article and so too, secretly, does the government. In fact, it’s the government’s agenda that’s driving the very destruction of all confidence in pensions.

    Funding for retirement by way of a DC pension plan is now a rubbish deal. All that the government’s succession of negative changes to the rules is doing is confirming that. Reduced LTA, reduced AIA, a punitive rate of tax on unspent funds in retirement, a eunuch pensions minister forbidden to make any inconvenient noises about scrapping the annuity rates trap, no restoration of Contributions Insurance, the cost of advice removed as part of the overall package, endlessly escalating complexity ~ the list goes on and on.

    The public are already aware of what these things all add up to and are voting with their feet. Who wants to start locking away money in a pension plan these days? Nobody that I know. More and more people are stopping their contributions and virtually writing off what they’ve paid in to date. What’s that money going to give them at retirement? Two thirds of four fifths of five eighths of F.A.

    Anyone in the industry who can’t see the writing on the wall must be either blind, stupid, in denial or all three.

    One solution might be a Retirement ISA with a Retirement Income Bond at the end of the day. Perhaps the removal from the equation of the word pension might just about salvage a shred of confidence in saving for retirement. Nothing else is likely to.

  9. I would tend to agree with @Paul 2 (27th Dec 11:46 a.m.) in that people in their 20s and 30s have always seen pensions as something that wasn’t a focus for them. Professional advisers worked hard to change that perception and educate them about the need for long term saving.

    ‘Instant access’ ISAs aren’t the answer; just look at the recycling of endowments in the eighties and nineties; as @Anon on 27th December at 11:27 a.m. said, they will use these funds inappropriately and have to restart saving.

    The ambition to own a debt free home by retirement is an obvious target for many people; although I guess that if you ask most young people, they’re objective (at least initially) is just to be able to manage to get on the housing ladder initially.

    WIth tax raids and falling annuity rates, the long term value of pensions savings has taken a bit of a battering over the last 15 years or so. The reversal of the tax raids may help (but are they likely to happen?), but new issues such as the Gender Directive add further challenges.

    The average person’s life in retirement will be much better if ways are found to make long term saving more attractive. The use of shorter termsavings vehicles can’t be the answer.

  10. Until successive Governments stop buggering about with the concept of pensions then consumers will continue to shun pensions as a savings vehicle.

    Government needs to introduce economics into the education syllabus earlier than 6th form so that kids understand money doesn’t grow on trees and politicians are the real con men who are full of ****.

  11. Youngsters do understand having to save for their retirement and pensions are a good idea but now that commission is banned how many youngsters will pay an up front fee to get good advice and how many IFA,s will be able to live on say £10 pm coming in from regular premiums. The FSA and this government have created a night mare that will come home to roost in years to come.

  12. Some academics lack cognitive ability and so have no direction in their thinking.

    We want as a society for people to be able to fund their retirement. That won’t happen if people are encouraged to take Isas that as he says they can spend during their working lives. That still leaves the problem of funding an income in retirement that the state cannot afford.

    He makes a typical basic mistake, like Ned Cazalet in Polly put the Kettle on. Merely to project a current trend forward does not produce a solution in itself which is what they are doing. It may be desirable to do so for the research but then you need to form a solution.

    Its like looking at an unfit person who takes longer to walk to work. Projecting that performance forward and seeing that they would get more unfit and therefore best to stop walking now. A health professional would advise them to do the opposite so they end up fitter and not worse.

    He clearly does not understand what it is to form a policy to achieve a desired outcome. He merely projects a current trend forward and offers no solution. Worrying for someone from the Cebtre for Policy Studies.

  13. cont… One suggestion for his development would be to took at why pension funding stagnated overall from the late 1990s where as it had been increasing. Also looking at the change in demographics of who’s money makes up the total. He may then want to look at those causes to then formulate a solution to improve private retirement income funding especially in view of an ageing population and a heavily indebted state.

  14. On retirement nobody wants a pension….they want money!! How this money is accumulated can be via a number of methods, of which pension planning is one of them. The problem is, with successive governments reducing the incentive for long term saving, Gordon Brown demolishing the tax credit system reducing returns and people’s general distrust it takes a brave, young person to contemplate planning of this type.

  15. IFAs are part of the problem. They simply look for opportunities to establish a regular income by tapping into people’s lifetime pension savings. I’ve taken advice twice, paid a high price for the advice which has proved poor. First time a re-distribution of assets set me up for a major collapse in 2008. three years before (supposed) retirement. IFA said tough who could have guessed. Further advice in 2010 left me believing I could retire in 2011 but in fact pension rule changes on GAD meant I’m still working even now and I’ll get less than ever. The pensions industry is its own problem. What a pity the old company pensions were blown apart.

  16. So who will pay for them in retirement?

    If all the current 20 yo want is to be debt-free and own a house, that suggests that they will have no real savings, with their entire net worth invested in a single asset that yields no income….

    And that’s ignoring the burst bubble that will be created when a genration of homeowners put their hosues up for sale to down-size and release equity….

    Sometimes being grown up is about doing what we have to – not what we want to….

  17. In 1988 I “sold” over 300 individual pension plans to 18 to 25 year olds.
    In 2010 to 2012 I “sold” none…. The reason is because I no longer have any faith in this form of retirement planning given the low returns and annuity rates plus i am not a charity as I found I was giving uneconomic levels of service.
    I have de-authorised for pension and investment business because the “sweat for bread” ratio is no longer viable for this type of business unless VHNW clients of which we only have a few but about a few thousand average income clients who we will now only advise on insurance and mortgage products and refer the others to an IFA if they are happy to pay the fees.

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