Wednesday, 27 April 2016

The Greatest Financial Challenge Facing My Generation: Pensions

Alice Marchant's prizewinning essay (Young Financial Journalist of the Year competition).

When I grow up I know that I am going to face a lot of financial challenges, for example buying property, employment, new technology and more. However in my opinion, the biggest difficulty that my generation will face is pensions.

In the UK there are 11.4 million people at State Pension age or older. By 2050 this number is expected to increase to 16.89 million.


According to This is Money, £107.97bn was spent on pensions in the last tax year. Consequently, if the estimations are true and the government continues to spend such a large amount of money on pensions, they will be spending a mammoth sum of approximately £160 billion on pensions in 2050. This will be a huge problem for my generation as we will have to pay a very large chunk of our wages each month on taxes. Already, workers only receive 64% on average of what they earn. I understand that it is necessary to be able to fund the NHS, education, emergency services etc., however in my opinion it is very unfair that so much of what the English population earns is taken away from them. If the amount of tax we pay increases to keep up with the rapidly increasing number of over 65s, the amount we will actually keep will be unfairly low. 

The reason that the number of elderly people is so high is the fast advance of health care and technology in the UK. This can be shown by how dramatically the life expectancy has changed over recent years. In 1950 the life expectancy at birth was 68.7 years and has risen to 81.3 years in 2015. This massive increase is still taking place now: cures are being found, research is being done and new technology is being invented. I would not be surprised if the life expectancy continued to increase at the same rate, if not faster. With new technology being introduced using robots, self-driving cars, advanced breathing support systems and more, several accidents are being prevented and others are dealt with quickly and successfully. New knowledge is being discovered regarding cures for cancer and other illnesses, as well as operations and transplants.



  
All of this is meaning that so many people today are living to such a great age, which will just keep getting higher. If it keeps increasing at the same speed, in 2050 the life expectancy will be 89.7.  Although this may sound like a very good thing, on the topic of pensions it will have a very negative effect on how much tax I will have to pay when I am earning money.

On the other hand, the government may decide it is paying too much on State Pensions and cut down on how much it is spending, so I wouldn’t have to pay so much tax on it. This does not improve my generation’s situation at all, it just means that when I retire I will only have enough money to scrape by, not enough to afford the extras. When I retire I want to live in a nice house, buy my children and grandchildren nice birthday presents, take up hobbies and do other things that older people should be able to do. The only way I will be able to do this is to start saving my own money as soon as I start earning it. But this solution comes with its own new problem: the interest rates of saving accounts are incredibly low, hovering around 1.5 – 3%. This is too low to keep up with the fast increase of inflation and so the money I put away when I am 25 years old will be worth significantly less when I am 65. In addition to this, as I have mentioned, the life expectancy by then will be roughly 90 years, and if I am going to live until then – or even longer – I will need to put aside enough money to last me for 25 years or more. I know that I will find this extremely difficult to do, and so will many others my age.

In conclusion, there are many reasons that so many older people are alive today and why so many more will be alive in the future, which all contribute to the problem of pensions. Without a doubt, pensions – whether it be the tax we will have to pay to support them or the fact that we will not be receiving a decent pension to pay for the whole time we live after 65 – will be the biggest financial challenge our generation is going to face.

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