Don’t rely on state pensions

Take control of your financial future to ensure your pension is not a pittance, writes Clem Chambers, CEO of financial information site ADVFN.com and author of investment guides including ‘A Beginner’s Guide to Value Investing’. The economies of the West are, by normal financial standards, broke. Doubters need simply divide the debt of a country, both total and yearly, by the number of families in the nation. There is no real ‘buffer’ between financial reality and street level economics; broke countries make for broke citizens. This reality is popping up in many places. Energy, for example, is becoming increasingly expensive. Naturally, people think that energy is going up in price. A classic error. Energy is not becoming more valuable, rather money is losing its purchasing power. Commodities are not getting more precious, the citizens of the West are becoming poorer. In the nineteenth century, US citizens would show up in Europe, buy castles and ship them home to America. A once-poor country just emerging from the grips of civil war had suddenly generated massive wealth. This is an example of how economics and politics can change the course of a nation’s wellbeing and wealth very fast. Anyone now praying for stability should think again. Europeans have been promised that the state will look after them in their old age. The large state burdens put on the populace in the form of taxes, came with a ‘quid pro quo’ that citizens were paying into ‘national insurance’ and ‘social security,’ a collective scheme to deliver the basic needs of all in sickness and old age. This was, and still is, the social contract. Now that the economic game is up, ‘baby boomers’ are seeing pensions evaporate while the younger generation sees the prospect of state retirement being delayed - to the point where the future retired will be not merely old, but ancient, by the time the state steps in to pay out pension contributions. In the UK, the young people leaving university now will most likely be over seventy before they can claim their retirement. Many wonder if there will be any at all by then. Fortunately, there’s a solution. People must take their personal financial futures back into their own hands. When considering the nature of government pensions, it’s advisable to remember the age-old bane of ‘middlemen’.  (In this case, the middlemen are the policy makers). Middle men are poor replacements for direct action. They often aren’t very good at what they do, do not act in your best interest and strip lots of value out of the process. If people take their finances firmly into their own hands, they will be comfortable enough in their old age. The subject really isn’t too tough to come to grips with. The power of compounding interest will always be there to help those who help themselves. The underlying problem of the developed world is that it has stripped citizens of certain responsibilities and left many unable to act for themselves. If people start realising that the state will not be there for them and take back the task of aggressively fending for themselves, there is plenty of potential for not only for reversing a bleak outcome but also changing the system itself.