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Fajitas, fire eaters and fire heaters (and pensions)

We recently had the great pleasure of a holiday in Egypt, and it was with a heavy heart (and even heavier eyelids) that I wrote much of this during our stop-over in Istanbul airport. For all that it has its troubles, Egypt is a wonderful place. Everyone who we met was courteous and attentive (some of the traders a little over-attentive).

The snorkelling (or diving, if you fancy) around the coral reef is something to behold. We also spent a day in Luxor, catching up with about 5,000 years of history between Tutankhamen, the Valley of the Kings, the Valley of the Queens and Luxor Temple. All worth seeing, and if you get a guide as good as Khaled Fangary – Egyptologist and expert reader of hieroglyphics – you won’t go far wrong.

Sharm el Sheikh airport isn’t quite the international airport I’d hoped for. If you’ve been there, you’ll understand. To illustrate, the departures screen (singular, not plural) grabbed my attention. The time was 15 minutes out and the gates on the right hand side of the listings were obscured because the monitor appeared not to cope with widescreen. I felt they hadn’t allocated due importance to what I thought was fairly pivotal information.

But it was a privilege to be there, a fabulous holiday and the flights worked out.

One night, we were sitting in a restaurant eating fajitas, watching fire eaters, under fire heaters. Not to be outdone by how out of place that all seemed, I started thinking about what Egyptians do to prepare for retirement.

Very little, it turns out, for many.

The average State Pension is the equivalent of about £20 a month. People with long work records and higher earnings can do better, but not much. I haven’t been able to ascertain the average wage in Egypt and I know it’s significantly lower but for many it’s also heavily subsidised by tips, which I suspect don’t count as pensionable earnings. Irrespective, at £20pm their State Pension is still a very long way off – in real terms – the ‘single tier’ amount being established in the UK.

In practice, many Egyptians will seek to buy a house to fund retirement, or pass down residual wealth through generations. Of course some countries rely entirely on the latter, with no State Pension at all. And any international comparisons need to be carefully considered; countries have different state benefits, debt issues, wealth distributions and above all perhaps, cultures. To simply compare the pension system will unlikely ever be a fair comparison.

That doesn’t mean everything’s fine in the UK.

Unavoidably, there are ‘winners and losers’ during the transitional period from the current pension system to the new.

Also, our State Pension has spent decades in an inflation wilderness and there is still no guarantee that the ‘triple lock’ (the higher of inflation, earnings or 2.5%) will be maintained under a newly elected Government. Some will even argue that this is an irretrievable loss of real value, with UK pension levels falling far behind many of our European counterparts.

The fact is, few countries have a sustainable State Pension system that gives people much beyond basic subsistence. But that’s primarily what ‘Pillar One’ is for.

The Pensions Policy Institute (PPI) has written some extremely useful guides to the new State Pension; their ‘single tier series‘. What the PPI have achieved – which few of us manage in pensions – is to distill a very large amount of detail into the key points. Their papers cover off most of what anyone needs to know, and give a good indication of the issues faced in implementing the new system. You can read them here.

And recently, we’ve had clarification from DWP of the ability for people to buy State Pension top ups. For those who are eligible, this will be an additional consideration within the (now many) retirement options people have, following the Budget.

‘Pillar Two’ is where auto-enrolment takes centre stage. And that is where people will have the chance to make the biggest difference in their retirement income, over time. The creation of the single tier State Pension provides the building blocks upon which workplace pensions can start to give people a decent lifestyle in retirement.

Coming back to Sharm el Sheikh, the single most startling thing for me was the fact that hotel occupancy (a very significant indicator of prosperity in a place almost entirely reliant on tourism) is currently down from around 90% three years ago to more like 35%. And that’s primarily down to household austerity – people cutting back on holidays – from its many visiting countries.

The wonderful coral-lined sandy beaches were once alive with occasional pensioners from the UK; people in retirement enjoying a special holiday in the tranquility of a never-ending Egyptian summer.

Pillar One pension provision will not be sufficient for most people to go abroad on holiday. Pillar Two will take time to make a difference, but it will. We need to build on both to ensure people can do more than just ‘get by’ in retirement. For their sake, and maybe for Sharm el Sheikh.

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