Few could disagree that younger generations rarely plan far ahead to ensure that when they retire they will have enough income to maintain the lifestyle they would have enjoyed when still working.
It is almost as axiomatic that few governments are any better in planning ahead of the pension’s time bomb that keeps ticking as most European societies suffer from deteriorating demographics.
They prefer to kick the can up the road as they have done with other major issues like structural economic reforms and the influx of refugees in a distressed EU.
The Social Mobility Commission of the UK has conducted some interesting research that confirm why the economics of ageing is becoming so challenging. Like in most other EU countries the culture of saving is being abandoned.
The Commission Annual State of the Nation report concludes that Britain is now a country of “haves and have nots”. This is hardly surprising. This is partly the result of deteriorating economic conditions and changes in the mindset of people.
Saving for a rainy day was the maxim that most baby boomers adopted as decades ago they were still not so attached to consumerism. Many preferred to build a pot for their retirement.
Today, according to the Social Mobility Commission, 31 per cent of families have nothing left to put in the bank when the month is over, while four per cent save less than £10.
Of course, this is not just the result of tough economic conditions, but also an effect of the low interest rate regime that penalises savers in a way that is becoming dangerous.
Younger people prefer to spend any extra money they may have left at the end of the month in travelling and entertainment with little or no thought about the need to provide for the future.
Some jokingly comment that in any case when the millennials and the generation before them get older they are unlikely to retire as the unfunded state pension scheme will have become so completely bankrupt that governments will keep increasing the retirement age.
So the economic strategy of these young people seems to be to ‘work till you drop’.
A survey by the National Association of Pension Funds asked the question: “Who do you most trust to provide a pension?”
Thirty-six per cent stated that they only trusted themselves, while a mere 11 per cent said that they trusted the government to cater for their pension.
This is not just the result of tough economic conditions, but also an effect of the low interest rate regime that penalises savers in a way that is becoming dangerous
I suspect that similar results could be expected if such a survey was to be conducted locally.
It seems that no local political party will dare introduce mandatory saving for retirement. I suspect that the extension of the retirement age will also not be included in any electoral programme.
So those who prefer not to live in denial and decide to plan for their retirement will have to rely on their own resources to avoid financial stress when they decide to retire.
Various studies on the economics of ageing promote the use of equity release by older people as a means to supplement the state pension when they retire.
This strategy seems to be ideal for the Maltese as we have one of the highest home-owning ratios in the EU and most young people still believe in investing in their own homes.
Many have a love affair with real estate and most young couples often aim to buya home that costs more than they afford thanks to their parents’ support.
But equity release is not as feasible as it seems. There are various versions of equity release schemes managed by banks and other financial institutions.
They are all quite expensive to manage. Most financiers are only prepared to release 18 to 50 per cent of the property’s value. Increasing life expectancy and significant movement in interest rates over a medium to long-term period make equity release lending that much more risky.
Resistance by family members to their parents’ borrowing on the security of their homes in their old age is another often ignored element that hinders the equity release option from taking root in our society.
Another option for those who have not invested sufficiently in financial assets to supplement their state pension is the downsizing option. Put simply, this means empty nesters selling their oversized homes, to buy a smaller property.
The biggest drawback that presently older people face is the insufficient stock of properties that are user friendly for older people with limited mobility.
johncassarwhite@yahoo.com