I hear a lot about a growing pension crisis as the UK average lifespan increases. What can be done to solve this problem?

I often write on Quora.com, where I am the most viewed writer on financial matters, with over 335.1 million views in recent years.

In the answers below I focused on the following topics and issues:

  • I hear a lot about a growing pension crisis as the UK average lifespan increases. What can be done to solve this problem?
  • How will the remote working trend affect the population at large?

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I hear a lot about a growing pension crisis as the UK average lifespan increases. What can be done to solve this problem?

Pensions in the UK, and much of the developed world, is a Ponzi scheme.

People think that Ponzi schemes are frauds and scams because the word was named after Mr. Ponzi (pictured above), who was a scammer.

However, in the literal sense of the term, a Ponzi scheme is where present investors are paid out from new investors’ money.

In that sense, the pension system set up in 1945 and beyond, could only survive if there were always more younger people who supported the system.

The only things that can be done to remedy this situation are

  • To have a baby boom or increase immigration. However, these people will one day get old as well, so this isn’t sustainable forever. People are having fewer kids in almost every part of the world, apart from one or two regions. We will probably have a declining world population by 2060 or 2070.
  • To change the system. Many private companies have gone away from final salary pensions towards a system where the person is depending on the market for the performance. This is much safer because in this case, the person isn’t relying on the company to stay in business to get a pension. Nor are they relying on many younger workers to pay the bills.
  • In terms of state pensions, the government should move towards a system where the final payments are dependent on the underlying value of the asset, to make it sustainable.
  • The government could keep increasing the retirement age, as they are doing now, which is an indirect way of reducing the benefits of the state pension.

On an individual level, all people can do is rely on themselves for retirement. Don’t put all your eggs in the government basket.

Invest for yourself, and provide your own pension. Government funds can be used to supplement that income if that support is still around in decades.

The more adventurous can also do things like changing your residency for a few years to take advantage of lower taxes, and reinvest the money for your pension.

That will become more popular in a digital world where more people can work from anywhere.

How will a remote work boom affect people’s lives?

There are many interesting answers here already, and many focus on some obvious things like:

  • More people will avoid commutes
  • An increased number of workers will want to use the extra income, and time, to do other things
  • People might move countries or cities

One thing that interests me is how this will affect the megacity. For decades, cities have only grown more powerful.

If you look at house prices in the UK, you can see a huge difference between London and the rest.

The biggest cities have sucked in the capital, talent, opportunities, etc.

Ambitious people would, typically, only “moved to the country” once they have made enough money and want a quieter life.

Things were changing even before the pandemic. More jobs and businesses were going remote.

Plenty of people, therefore, decided to emigrate or move to a cheaper place in their home country.

The pandemic has made more people question why they should pay double to live in a big city versus somewhere cheaper, sometimes with a better quality of life.

I suspect this will result in

  • Making it harder for startups to succeed in bigger, more expensive, cities. Traditionally, startups went to places with more capital and people, like Silicon Valley and London. Increasingly, startups in those places might not be able to compete with founders who can keep their costs down.
  • An increase in house prices in some smaller places versus the big cities.
  • Governments getting more strict on residency rules. Already, plenty of governments have tightened up the rules, and want more expats to pay taxes if they have more “ties” to the country. If more people work remotely and globally in the future, countries might go down the United State’s route – taxing people globally based on citizenship and not residency.
  • An increase in hybrid roles if people get fed up with working from home all year
  • The rise and rise of new technologies. First, we had Zoom and Teams. Next, the Metaverse to make our interactions more interesting?
  • The number of people who can live, and work, remotely will skyrocket. Before it was only retirees and some rich people. Increasingly, it is digital nomads and others
  • Servicing those nomads will get more lucrative but also complex for firms in financial services. Things like taxes and investments for nomads will get more complicated as it is multi-jurisdiction. 
  • Firms that rely on face-to-face communication will need to work harder to make more money, or even stay in business. Look at restaurants. Now the best performing ones rely on creating experiences and not just on taste, because there are loads of great delivery options for stay-at-home workers.

Like everything though, we can’t know what will happen.

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Financial Planner - Adam Fayed

Adam is an internationally recognised author on financial matters, with over 415.7 million answers views on Quora.com and a widely sold book on Amazon

Further Reading 

In the article below, I spoke about the following topics:

  •  How is it wise to save money when inflation is constantly lowering its value?
  • What kind of things do startups waste their money on? 
  • Can using money to leverage gains ever make sense in the stock market?

To read more click below

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