{"id":21177,"date":"2021-06-17T13:29:26","date_gmt":"2021-06-17T13:29:26","guid":{"rendered":"https:\/\/smh.group\/?p=21177"},"modified":"2023-02-15T13:51:31","modified_gmt":"2023-02-15T13:51:31","slug":"timing-retirement-saving","status":"publish","type":"post","link":"https:\/\/devstagesite.co.uk\/smhgroup\/timing-retirement-saving\/","title":{"rendered":"Timing retirement saving"},"content":{"rendered":"\n

Research from the Institute for Fiscal Studies (IFS) examines how pension contributions fit into life-cycle patterns. <\/strong><\/strong><\/p>\n\n\n\n

Economists often seem to think in a way that is unique to their world. Many of their theories start with the assumption that people behave rationally, weighing up all the pros and cons before deciding what action to take. Impulse-buying doesn\u2019t compute with these expected behaviours. <\/p>\n\n\n\n

One interesting economic viewpoint\u00a0that holds some logic for the person on the street is the concept of pensions as deferred pay.\u00a0The\u00a0economist\u2019s notion of retirement planning can be summarised by the graph.\u00a0<\/p>\n\n\n\n

The economic argument is that a pension should be regarded as deferred pay, so that instead of income stopping in retirement (the blue line) a lower income is accepted before retirement to provide some income (2\/3rds <\/sup>in this example) after retirement \u2013 the orange line. Income is therefore, in theory, smoothed throughout life and continues into retirement. Ignoring all inflation \u2013 as only economists can \u2013 the total income in both scenarios is the same. The difference is in how it is distributed over a lifetime: Earnings foregone during an individual\u2019s working life re-emerge as a retirement pension. <\/p>\n\n\n\n

This deferred pay approach was the starting point for some research undertaken by the Institute for Fiscal Studies (IFS). It looked at both theory and practice and suggested the following pattern for pension contributions: <\/p>\n\n\n\n