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Baby-boomers' Pension Warning
The Bank of England warned yesterday that the pensions crisis is likely to get worse as the baby-boom generation discovers that plunging stock markets have eroded the value of their savings.
Research from the Bank suggests today's pensioners are the lucky ones and that the market is unlikely to give the soaring returns seen in the late 1990s.
"The current generation of pensioners has benefited from extraordinarily high asset prices which are unlikely to be repeated," says the report's author, Gary Young.
"Those relying on financial market returns for their retirement income could be much less lucky than those who enjoyed the high returns of the 1980s and 1990s."
Fund managers have tried to reassure investors that equities are still a good long-term bet for investors despite the collapse over the last few weeks, with the FTSE 100 index of leading shares falling to a six-year low yesterday.
But the Bank's research suggests volatility in the markets could leave many of the next generation of pensioners in poverty.
"Recent experience with endowment mortgages emphasizes that the returns on long-term investments can turn out to be substantially different from expectations," the report said. "In a similar way, a period of very low rates of return on capital would leave people with much lower pension entitlements than had been anticipated."
Mr. Young's research poses a challenge for the government which wants workers to save more for their retirement to end Britain's estimated £27bn pensions shortfall.The research suggests that private pensions are far more risky than the personal finance industry or the government admits.
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