About the author: Polly Garland blogs about personal finance topics including pensions, savings and annuities.
Now that the default age of retirement has been phased out, and employers aren’t necessarily setting a compulsory age, we can retire when we want to. After working hard for 40 to 50 years, you would assume that money worries would be a thing of the past. But it has come to light that when the youth of today retire, they will be substantially worse off compared to current pensioners.
In a recent article, The Independent’s Julian Knight calls on research made by Liberty SIPP and The Independent on Sunday. Knight infers that “the average worker is facing a bleak old age surviving on a private or company pension equivalent to only one-seventh of the national minimum wage.”
Knight goes on to state that “to buy an income equivalent to the national minimum wage – just £12,115 per year – Britons have to save up a pension pot of £220,776.” This is, shockingly, over seven times more than what the average individual saves prior to retirement.
What position are young people in to save for the future? Young people are dealing with the direct effects of the recession. Minimum wage is coming up against the cost of living; elements such as rent, food and energy costs, as well as public transport, have risen. The additional pressure of debts is also affecting many people.
According to the Guardian’s Paul Johnson, “over time each generation can generally expect to be better off than the last. Yet people in their 20s now have significantly lower incomes than those in their 20s at the turn of the century.”
The level of unemployment is also a real concern. Recent figures released by the Office for National Statistics show that the total number of unemployed in the UK is now at 2.51 million.
As young people now have a longer life expectancy than their predecessors, what can they do to soften the financial burden? Things to consider would be to start saving earlier, and to contribute more. A negative repercussion of this scenario is that people in the future will feel the pressure to retire later.
If you are concerned about how much you should be saving, The Money Advice Service provide a free online Pension Calculator.
More needs to be done to raise the awareness of young people in regards to issues surrounding pensions. A lack of awareness can no longer be the cause for people not preparing for retirement.
Category: Personal Finance