State's pension share will come down, finds study

State's pension share will come down, finds study

	Published : Thu, 17 Nov 2005 11:35 By : Cedric Benson Print this Story

LONDON: The state will cease to provide majority support for pension from next year, according to a study. The state had accounted for 51 pence of every pound a pensioner earned in 2003-2004, but this is set to fall to 46.9 pence a pound, according to research firm Datamonitor, which carried out the study on behalf of insurer Prudential.

The trend indicates, the study revealed, that the state could provide just 44 per cent of people's pension by 2013-14. This will mean that people will have to rely more on private provisioning for pensions. This can include savings and investments and personal and occupational pensions as also benefits from property.

When the pension scheme was conceived in the country in 1908 by Lloyd George's Liberal government through the Old Age Pensions Act, the majority share of the retirement income for people over 70 years of age was to come from the government. In 1979, the state's share accounted for nearly two-thirds.

The government has already set a target of 40 per cent of an individual's pension income provided from state resources, and the balance from private saving and occupational schemes.

Ali Crossley, director for lifetime mortgages at Prudential UK, said the shift will be effected largely with the state pension rising only by inflation each year. Income from other pensions and investments, particularly property, is expected to rise by more than inflation.

The study estimated that income from occupational schemes will be around 27 pence for every pound in the coming 10 years, while that from private pensions will rise from 3 pence in the pound in 2003-04 to 4.5 pence by 2013-14, and money from investments from 9 pence to 10.5 pence. Income from property, calculated at 1 per cent of the money an average pensioner could get during 2003-04, may go up to 3 per cent by 2013-14. The study also said money from continuing to work will grow from 9 pence in a pound to 11 pence during the period.

Crossley said the days of an employee sitting back and relying on the state to fund the majority of his retirement income are gone. The onus of retirement funding will pass to the individual.

She said the key to taking responsibility is planning ahead. "We need to decide on the retirement lifestyle we want — and we need to think about how we will fund it. We can’t rely on get-rich-quick schemes or on a lottery win. Instead we need to make a sensible judgement about how much to save and what other assets we can rely on."

She believes property could be an important source. According to estimates 18 million people already plan to use their home to help fund their retirement. The most common ways of doing this are through downsizing or using a lifetime mortgage.

Crossley cited equity release as an option, which allows older homeowners to access some of the value of their home without having to move. The homeowner can remain in their property until they die or move into permanent care without having to make any payments.