Dud pensions made us a nation of gamblers

For the last couple of decades, the Anglo-Saxon world has been swept by wave after wave of speculation. Where we used to trust in long-term savings vehicles, and assume that putting away money into regular deposit accounts was the best way to deal with our cash, we now leverage ourselves up to bet on property; we spread bet endlessly and we trade.

Here at MoneyWeek we get emails from perfectly ordinary people asking about everything from how they can bet on the differing spreads on European sovereign debt, to how best to buy repossessed houses in Florida and get exposure to the Canadian currency. And, of course, tens of thousands of Brits own houses all over Portugal, Spain and Bulgaria – some just as holiday homes, but most with the expectation of somehow cashing in too.

It sometimes feels a bit bonkers. But it is in fact entirely rational. Why? CLSA’s Russell Napier thinks it is all about pensions. For most people, real wages haven’t budged for years. And in many cases they are now going down. Note that in the three-month period to the end of March this year, average wages rose by 1.9%. That sounds fine, but if you take account of the fact that the Retail Price Index is now rising by more than 4% a year, you realise that most people’s purchasing power is not rising, but falling.

Add that neat bit of misery into the dismal performance of most equity-related investments over the last decade; Gordon Brown’s raid on pension dividends; and the sad demise of the final salary pension system in the private sector; and you will begin to see the problem. Unless you are one of the very highly paid it is absolutely not possible – via the conventional routes – to ever save enough for a reasonable lifestyle now and a decent retirement.

That’s why we feel that if we ever want to stop working we have no choice but to speculate. It’s why I’m already getting emails from readers wanting to know how to buy cheap houses in Greece. And it is why our new government, should it have financial stability as one of its aims, might like to have a go at sorting out the chaos that currently passes for the UK’s pensions system.

  • Alex

    Very true. There are two or rather 3 sides to the coin though.

    Pensions were originally setup with hopelessy flawed mortality expectations. Simply put…working men used to retire at 65 and die by 67. At that rate it was easty to cover the expense of retirement. At the current rate the average person will retire at 65 and spend 15 years in retirement.

    Education, education, eduaction. A great slogan, and one that has a problem within it, people start working later and start working with debts from University, even a basic understanding of compounding will illustrate how doubly-damaging starting work later is, you have fewer years to earn, and less years to compound. Starting work at 30, and retiring at 65, then expecting to spend 20 odd years in retirement is a tall order for any investment.

  • Alex

    Great expectations..lets face it whether it was national insurance or private pension contributions people have been told that they can save 5-10% of their salary and expect to retire with a comfortable pension. It’s just not going to happen, 30-35% would be more realistic.

    With shorter working lives, longer life spans, and raised expectations of what a comfortable life constitutes it’s no wonder pensions are looking shakey.

    Of course one simple solution would be to abolish retirement entirely as it’s a concept that had far more relevance in an industrial/factory economy than in a service economy.

    Or alternatively to not let a single child leave the nations schools without demonstrating that they understand compound interest!

  • DazO

    What do MW expect from their readers when they themselves are promoting frequent speculative trading (and quite often getting it wrong at that!).

    Completely agree with Alex, compounding is the most powerful investing tool of all and yet hardly anybody seems to know about it or uses. I can only imagine that it is all too simple and boring a strategy for humans to embrace and if we all just did this the city of London would be halved and MW would be no more.

  • Tony Cartman

    This is tottaly true. Due to the market situation and the huge offer of properties, it’s necessary to gamble to find a great deal.


  • Glyn Griffiths

    I find it quite amusing that the editor of Moneyweek is expressing surprise about this. Stone the crows they’re just a bunch of gamblers! What’s the matter with these people. With the greatest respect Merryn you do see a somewhat skewed population which as DazO has pointed out is in no way discouraged by the frequency of articles starting “Profit from…” Wasn’t there a ‘Profit from this deadly virus’ recently?

    Loved your book by the way. Got it for my fiance but ended up reading it after her. 99% of it works for men too! You should reissue under a different title! 🙂

  • Financial Genius

    The solution for pensions is simple. The government should open a private pension for every newborn on the very first day they pop out. A one-off lump-sum of £5k at age zero will grow to roughly £0.5 – 1M by age 70. No early retirements. Pre-retirement worktime benefits should be slashed, to deter layabouts who want to hang around watching telly for up to 54 working years until their pension fund matures.

  • Jules

    Financial Genius: can you imagine, a pot of money, containing £5k per person, compounding away. What government would be able to keep their hands off it?

    And therein lies the problem with pensions. There isn’t any money in the “pension pot”. What isn’t being speculated with is being raided.

    In order for pensions to make any sense at all, you’ve not only got to trust the pensions companies, you’ve got to trust the government, and you’ve got to trust their heirs and successors for the next 50 years. Yet, who in their right mind would trust a government for one week?

  • Phelix

    Jules.. agreed..
    It is too tempting to government to “raid” the piggy bank.

    A good led to follow would be that of Singapore, where by your contributions are ringfenced.