What ever happened to those pensions?

In about ten years time, the UK population will look something like this; out of every ten people, two people will be over 65, two will be under 18, leaving six people of working age.

If the present benefits system is any guide, at least one person will be receiving some kind of state benefit, while another will be a homemaker. That leaves just four people that actually get out of the house and receives a salary.

However, at least one out of four workers will be on the government payroll. Simply put, in about ten year’s time, three private sector workers will be sustaining the remaining seven.

The UK is ageing rapidly, that would be serious enough problem. However, today's 50-somethings haven't been too quick to put anything aside for those twilight years. In the contrary, they have been spending and building up a huge pile of personal debt.

Why have today's middle aged workers been so reckless? I'll give you three reasons; the stock market, the housing bubble and the government. People close to retirement have put too much faith in asset markets and the likelihood of a viable state pension system.

Over the last thirty years. Today's workers were hit by two successive asset bubbles that discouraged savings and encouraged consumption.

The first was the equity market. During the 80s and 90s, capital gains on the FTSE were impressive. With portfolios increasing effortlessly, pension plans prospered. People dodged the difficult task of actually spending less than they receive. However, the dot.com crash, coupled with a few criminally irresponsible tax changes by Brown, and those pension plans evaporated.

There was a similar story in the housing market with its regular cycle of boom, bust, and then even more boom. It sucked many middle aged people into thinking that their three-bedroom semi will provide a sufficient retirement nest egg. The BTL scam was a deluded variation on this theme.

Going foward, the prospects of any follow-on bubble is bleak. Equity markets are unlikely to repeat those two glorious decades of hyper appreciation. An economy with an ageing population is unlikely to be an innovative and productive. As for the housing market, it is hard to see how those semis will keep their value when everyone on the street has the same idea of cashing in and downsizing into a granny flat.

What of those state pensions? Can our newly retired pensions count on the generously of those three lonely workers holding everyone else up?

That famous old cliche - you reap what you sow - seems very appropriate. Today's 50-somethings haven't taken seriously the problems of young workers. Many have been priced out of the housing market, forced to pay off student loans, and taxed heavily once they entered the job market. Today's mistreated young workers will eventually assume control, and it is very likely that they will take a very dim view of their extravagant elders.

A reckoning is on its way. The UK pension system, both private and public, will collapse. There are no short cuts to a comfortable retirement via asset bubbles in housing and equity. Those without any savings will find their declining years both difficult and impoverished.

So what should an ageing spender do as retirement draws close? What is the best asset class out there? I have always thought children were an excellent investment. Treat them well, educate them, and drill in a strong sense of familial dependency. When the time comes, just hope that they have prospered enough to look back and remember their dear old Ma and Pa.