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The Pensions Worry.

A Poorer End Is Nigh?

Pension-related suggestions, by Third Way

Are you looking forward to retirement? If you are a woman, self-employed, or earning less than £11,500 a year, retirement may be something you should dread rather than wish for….

The value of the basic state pension is steadily declining. Margaret Thatcher broke the link between the State pension and average earnings. If she had not done this, a single pensioner would now be £24 per week (almost 40%) better off, and a married couple £38. Thatcher broke the link, however, and New Labour will not reverse this policy.

Personal Pensions are held up as an alternative. Research by investment company Flemings with help from Mintel suggests that three types of people should be particularly concerned by the present policy :

Women : Only one in eight women can expect to retire on a pension two-thirds of their final salary. One reason women are likely to be less well off in retirement than men is because their earnings may be disrupted by motherhood.
The self-employed : One in three self-employed people are looking at poverty-line retirement. The self-employed will be worse off than the employed because it is easier and cheaper to get into a company scheme than to set up a ‘self-employed’ arrangement.
Those on low incomes : One in six people currently earning £11,596 or less are facing poverty in retirement (retiring on less than 25% of your final salary).

What you as an individual can do :

1. If you have the chance to join a pension scheme run by your employer, do so.
2. If you cannot join a company pension scheme, take out a private one. Look for pension schemes with low yearly charges (1% – 2%).
3. Aim to save 15% of gross salary for a pension. If you want to be a mother, try to save more or add lump sums to make up for the earnings gap.
4. Start as early as possible. As soon as you start earning is best… pension savings need time to grow.

What Third Way advocates :

1. The link between average earnings and the State pension should be restored.
2. Women should receive payments from the State to cover pension contributions while they are caring for children and thus unable to work full-time.
3. Schools should educate all final-year pupils in the basics of financial management and planning.

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