- Both UK and US drop in Global Retirement Security
Rankings
- US falls due to sharp income inequality and reduced
workforce to support retirees
- UK is two spots away from being in the bottom 10 for
government indebtedness
- FCA’s Andrew Bailey says “clear risk” that savings
rate for retirement is too low
- UK’s retirement savings gap set to widen to £2.3trn due
to automation of jobs
- UK expected to fall into major pensions crisis by 2028
The economics of retirement funding is at breaking point. Thanks to low
interest rates, looming inflation rates and slow growth the future of our
retired populations are at serious risk.
Currently there are 600 million individuals placing pressure on
already-established retirement systems. This is set to get worse as the
results of the last decade of financial experimentation show themselves and
ageing populations widen the cracks in our economies.
Most pension schemes were formed in a time when manufacturing and
traditional bricks and mortar business were the pinnacle of Western
economies. This is no longer the case. Globalisation has seen countries
switch to service economies. Our financial planning has failed to keep up.
Both the United States and United Kingdom are performing so badly in
retirement planning that they have dropped rankings in the Global Retirement
Security Rankings.
The global retirement crisis is playing out against a backdrop of a much
greater economic crisis. There is slow economic growth across major nations,
rising inflation levels and a major debt crisis. No-one really knows how this
is going to end.
No stranger to the United Kingdom
Natxis’ Global Retirement Security Rankings sees the United Kingdom drop
one place from last year. This is mainly due to a fall in it’s health score.
It is its finances sector though which is bringing it down the most and a
point of real concern for pensioners of the future.
Natxis explains:
The UK still ranks in the bottom 10 for the Finances sub-index,
despite improving in both rank and score from last year. For the second year
in a row, it scores 1% in the interest rates indicator and is only two spots
away from being in the bottom 10 for government indebtedness.
The U.K. is no stranger to pension crises. In the last five years we have
sadly seen what bad planning, mismanagement and lack of government oversight can
mean for pension funds. Tata Steel, Woolworths and BHS are just some that
come to mind.
A Pensions and Lifetime Savings Association report finds that three
million workers with final salary pensions have 50% chance of losing up to
fifth of their income because their employers have made unaffordable
promises.
The PLSA data finds the most vulnerable employers have a 50:50 chance of
not having an insolvency event in the next 30 years:
“More than 11 million people rely on defined benefit pension schemes
for some or all of their retirement income but there is a real possibility
that without change we will see more high profile company failures such as
BHS or Tata Steel.”
Former pensions minister Steve Webb told City A.M. that he agrees:
“It’s not enough money. It’s just brutally not enough money going in,”
Just this week FCA Chief Executive Andrew Bailey made a point of the
dangers looming for retirees, in his annual Mansion House speech:
“There is a clear risk that the savings rate for retirement is for
many people too low to meet their expectations of retirement.”
For future workforces the situation is unlikely to improve. Last month
pension consultants Hymans Robertson warned that a third of UK jobs
were at high risk of automation by 2030.
The FT
reported:
“If one in three jobs are at risk of automation by 2030, as estimated,
then this would mean retirement shortfalls increase to £2.3tn, or one year’s
current UK economic output.”
Poor State of the United States
The United States’ new ranking puts it below the Czech Republic and
Belgium. It dropped three places, down to 17th place in a global index of 25
countries.
Index producers, Natixis, explain that ‘While the country has the fifth-
highest income per capita, inequality remains an area of concern given it has
the sixth-lowest score for income equality.’
This does not help pension contributions. Research shows that Nearly
40% of U.S. workers are not offered any payroll savings options. Around
30% of American workers have no retirement savings at all.
As in the U.K. there are a number of studies that work to estimate the
size of impending retirement crisis, each with varying (but all worrying)
results.
The most pessimistic is from the National Institute for Retirement Security.
The Institute finds that 84% of American households are falling short of
acceptable retirement savings targets. They estimate that total
household undersaving may reach $14 trillion.
When it comes to government run plans, the shortfall is just as depressing.
Andrew Biggs of the American Enterprise explains:
Estimates of total funding shortfalls for government-run plans range
from a low of $14.3 trillion to a high of $26.1 trillion. The higher
estimates are generated by economists who seek to more accurately measure the
benefit liabilities of public sector pensions.
In regard to the U.S. the WEF concluded that the situation was as
dire as it was for the U.K. 85% of the retirement savings shortfall is in
government plans, with corporate plans making up 2% and households the
remaining 13%.
How to solve a problem like retirement
We need leaders to take note of the retirement problem and recognise it
for what it is: a looming crisis. Public policy is the only real way over 600
million Westerners are going to be supported in what is currently looking
like a dire situation.
Currently governments are adopting a ‘wait-and-see’ approach. See the
recent UK pension dramas of Woolworth, Tata Steel and BHS. None of those were
a surprise, people must have known they were coming for years. But it took a
last minute call to the government to try and solve the problems.
‘Luckily’ the UK government could just magic up some money to either stump
up the pension pots or force those responsible to do the same. The problem
is, there is a £1.5 trillion pension shortfall at the moment. This is set to
grow, the British government is broke. They cannot keep balling out
retirement funds.
Right now companies who cannot afford to pay the pensions they have
promised staff will have their pension schemes rescued by the Pension
Protection Fund, government service. Those affected may receive up
to a fifth lower than what they were originally promised.
In the U.S. politicians have promised deal with this upcoming
crisis through a combination of expanded Social Security benefits and
new state-sponsored retirement.However, this doesn’t work for political
gains.
Andrew Biggs explains:
In government, by contrast, the incentives are in the wrong direction.
When government retirement plans are underfunded, politicians can keep
current taxes low while handing the bill to future generations. And of course
future generations don’t vote in today’s elections. This explains why
Congress has done nothing to fix Social Security, despite knowing since the late
1980s that the program needs reforms.
Sadly the ‘solution’ offered by large think tanks and government bodies is
that we just need to figure out how to get people working for longer:
“Policymakers do need to be thinking now about how to integrate 75- and
even 80-year-olds in the workplace,” Michael Drexler, head of
financial and infrastructure systems for the WEF told The Financial Times.
Getting people to work longer is ok in theory but in reality it’s not
practical. One just needs to look at the medical bills for the elderly and
realise this.
Ultimately, the key is to generate sufficient economic growth to plug
the gap. But we come full circle, governments appear to have no plan as to
how to make that happen. We need to take responsibility.
Do not rely on employers and the government in retirement
As we recently discussed, the OECD believes the UK’s pension deficit to be
far greater than aforementioned UK bodies have assessed.
In May they estimated that the pension shortfall is higher
than £6.2 trillion. The OECD expects it to increase by around 4 per cent
per year, reaching more than £25 trillion by 2050.
Following a month of political party conferences in the U.K. and a year of
Trump’s election pledges, there has been little mention as to how the looming
deficit will be managed.
It is vital that savers and investors begin to take responsibility for
their own pensions and ask questions. Most importantly one must ask if you
can hold gold as part of your pension.
The economy shows that whilst stock and bond markets have done well in the
short term and they are artificially overvalued. Once again this is with
thanks to the easy monetary policies of central banks and governments.
This is where gold plays a key role.
Dr. Constantin Gurdgiev, formerly an adviser to GoldCore, says the
following about the importance of having gold in your pension:
“Gold is a long-term risk management asset, not a speculative one.
As such it should be analysed and treated predominantly in the context of
its role as a part of a properly structured, risk-balanced and diversified
portfolio spanning the full life-cycle of the investment and pension horizon
for individual investors and those with pensions.
Whether they be SIPPs in the UK or IRAs in the USA.”
Investors in the UK and Ireland, the US, the EU can invest in gold bullion
in their pension, through self-administered pension funds.
UK investors can ), Irish investors can (SSAS) and US
investors can invest in .
The pension crisis is a multi-trillion dollar/pound crisis. It is not
going to go away. Adding gold to your pension is a key way to protect
your retirement from the pensions time bomb.
Pension funds, throughout the West, have a distinct lack of
diversification when it comes to assets. This has cost pension holders a huge
amount of money and places their future livelihoods and risk.
Gold has an important role to play over the long term in preserving and
growing pension wealth. You can read our guide about how to invest in .
News and Commentary
Source: Gold.org
Gold Prices (LBMA AM)
06 Oct: USD 1,268.20, GBP 970.43 & EUR 1,083.93 per ounce
05 Oct: USD 1,278.40, GBP 969.28 & EUR 1,086.51 per ounce
04 Oct: USD 1,275.55, GBP 960.87 & EUR 1,085.11 per ounce
03 Oct: USD 1,270.70, GBP 959.00 & EUR 1,081.87 per ounce
02 Oct: USD 1,273.10, GBP 956.48 & EUR 1,084.55 per ounce
29 Sep: USD 1,286.95, GBP 963.15 & EUR 1,090.82 per ounce
Silver Prices (LBMA)
06 Oct: USD 16.63, GBP 12.73 & EUR 14.20 per ounce
05 Oct: USD 16.66, GBP 12.64 & EUR 14.19 per ounce
04 Oct: USD 16.83, GBP 12.67 & EUR 14.29 per ounce
03 Oct: USD 16.61, GBP 12.53 & EUR 14.13 per ounce
02 Oct: USD 16.58, GBP 12.46 & EUR 14.12 per ounce
29 Sep: USD 16.86, GBP 12.60 & EUR 14.27 per ounce
