'Baby Boomers' Urged to Splash Their Cash; the Traditional Financial Strategy of Simply Saving for Retirement Is Being Redefined. JEREMY GATES Reports
Byline: Jeremy Gates
ON the face of it, everything was handed on a plate to post-war "baby boomers" - generous student grants in the 60s, huge 'paper' profits on bricks and mortar since the 70s, and share windfalls in the 80s and 90s as icing on the cake.
So, why is the generation born at the end of the Second World War so gloomy about retirement?
Fund manager Prudential says: ''During the course of 2003 and 2004, 1.1 million people are planning to retire, but research suggests many will endure a life of financial hardship, loneliness, ill health, even relationship problems with partners.
"Only 4 per cent of people are able to retire early because they have enough income on which to live. A mere 26 per cent of retired people feel excited about the prospect of not working.''
One-in-three people, says the Pru, survives on pounds 10,000 a year or less in retirement. Four pensioners in five see monthly income drop pounds 347 on retirement - and, amazingly, more than a million pensioners cut spending to provide an inheritance to their children.
In my experience, plenty of pensioners are more cheerful - and fitter - than Prudential suggests.
Maybe they put on gloomy faces to researchers on the doorstep.
But if low inflation is here to stay, this could be the moment to rethink financial strategy in retirement.
For years, pensioners with savings lived on their pensions with investment income - building society interest, share dividends, Premium Bond wins - as 'top-ups' to cover luxuries like cruises and new cars.
Today, pension fund 'black holes' run into billions, made worse by Chancellor Gordon Brown's decision in 1997 to siphon pounds 5bn a year from their coffers. And, with base rates at their lowest for 48 years, savings make you feel good - but earn little money.
In October, thousands more pensioners will wonder why they bothered to save - when the Pension Credit system arrives. Added to the Minimum Income Guarantee (MIG) for those with no savings at all, the Savings Credit will add a little extra for those with modest savings.
The Association of British Insurers (ABI) says means tested benefits are a disincentive to save: those who qualify for Savings Credit lose 40p on every pounds 1 of extra income from their savings.
In the long term, penalties on better-off savers go deeper than this. In care or nursing homes, pensioners with substantial savings - probably money unlocked by the sale of their homes - often subsidise fellow patients paid for by local authorities. As the authorities refuse to pay more, the burden of rising bills swings onto those paying their own way.
And, the final disincentive to saving for old age is, of course, inheritance tax - allowing the Government to take 40 per cent, on death, of all personal estates above the tax-free threshold of pounds 255,000.
Currently, the Treasury collects pounds 1.35bn a year in inheritance tax - and the figure is soaring on the back of rising house prices.
Logically, therefore, it isn't sacrilege - though it sounds it - when a leading financial adviser tells old folk: ''Stop hoarding savings - and start spending!''
However, Amanda Davidson, partner at financial adviser Charcol Holden Meehan, believes the old adage - that pensioners only spend their capital in a crisis - must go. …