The Resuscitating Retirement Saving report issued from the International Longevity Centre UK examining the financial and economic circumstances of young people today has found that many young people are at risk of an uncertain or financially unstable future. Today’s young people tend to favour saving for and investing in other ventures rather than planning for retirement, consequently rendering them ill equipped for their future.
Amongst previous generations the importance of saving for the future was deeply instilled and took a higher priority in contrast to now. People would set up and make contributions into a pension as soon as they started working, which was usually from in their late teens.
The current generation are the complete opposite according to the Resuscitating Retirement Saving report; “young people today are living for now and appear to spend a higher proportion of their income than other age groups.” Saving for a deposit on a house, a car, or travelling takes higher precedence amongst young people. It is often not until they start approaching their thirties before they start thinking about contributing to a pension.
A contributing factor to this phenomenon has been put down to the fact that young people are spending more and more time in further education than previous generations, which often leads to spending valuable time in part time or temporary jobs before they eventually settle into long-term employment and begin thinking about a pension. The report goes on to state that: “There has been an increase in the number of young people with savings, although they are not necessarily saving more, and debt and poor financial management remain problems associated with today’s young people.”
Many young people are deterred by the large sums they need to save in order to generate a sustainable pension. To retire on a pension income of about £25,000 in today’s terms, including the £7,500 state pension, a young person will need to save £430 a month from the age of 30 to 68.
According to latest research published by Scottish Widows, nearly half the working population are not saving enough for retirement, and a fifth are failing to save anything at all. The findings went on to show that although people aspire to an average annual retirement income of £24,300, only 51% are saving adequately to reach that target. This figure further drops to about 25% when those with a final salary pension are excluded.
Dr Craig Berry, senior researcher at the ILC and author of the report Resuscitating Retirement Saving suggested a way to remedy the current situation: “One alternative is for the government to offer young people vehicles for saving in a more liquid format; funds could be converted into pensions saving at a certain point. This would offer greater flexibility while reinforcing the message that retirement planning cannot be delayed indefinitely.”
Pensions Minister Steve Webb said: “We have to get young people engaged in pensions as they will live longer than us and will have to take more responsibility for saving for their retirement.