Daily Money Minute

Fotolia_54867638_XS_7“People expect to be paid for not working, no matter how long they live. This is not realistic and people will just have to work longer.” ~Dr Ros Altmann

Pensions are a great idea in principle, as a means for providing an income in your old age. The problem is that they are essentially a pyramid scheme. Lots of young people at the bottom of the pyramid paying money into the scheme, whilst at the top a smaller number of elderly people draw their benefits accrued from their contributions over a working lifetime. In the years after the World War II this idea worked well. The post-war baby boom produced lots of young people and life expectancy was shorter than it is today. For many of the ‘baby boom’ generation this has meant they can enjoy a relatively early retirement with a reasonable income. However the pyramid has become inverted. More people are living longer and drawing an income for longer from their pension schemes. Together with fewer young people in the workforce paying money in, sustaining pensions as we know them will be difficult if not completely impossible. Reality for future generations will mean working far longer than perhaps they expected and making their own provision for financial security once they cannot work. It has never been more important to manage your money carefully and make sure that you put something away for the day when you can’t work anymore.

© Roy Sutton and Mann Island Media Limited 2013. All Rights Reserved.

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