/ Money

Young, dumb and not saving for retirement

It’s an age old question – why aren’t more young people putting money into a pension? It’s one I took to my friends and football team. They responded with some surprising and predictable answers…

Over the past two weeks, I’ve been carrying out some undercover research. It differs slightly from the thorough investigations we usually carry out here at Which?, but it has offered some pertinent and concerning insights nonetheless.

After playing football a couple of weeks ago (we won three nil and I scored an accidental header, if you’re interested), I casually dropped the word ‘pension’ into our post-match pub debate…

Pensions on the pitch

I was surprised by how engaged my team-mates, all in their late 20s, were. Out of the 14 people sat around me:

  • Eight had signed up to their employer’s pension scheme.
  • Two had stakeholder pensions.
  • One had a property they were letting, which they planned to use for retirement income.
  • And the final two were too busy shouting at the rugby to answer.

Of the ones who saved through their workplace pension, three knew both their employer’s and their own contribution in pounds and pence. The others only knew how much they were contributing themselves.

That’s apart from one player, who said he’d been too lazy to cancel payments when he started his job. He only persevered when he’d looked at his pension statement and found that he had much more in his pot than he’d put in.

Pension talk over Sunday lunch

Fast forward to the weekend just gone, and I was having Sunday lunch with six friends of the same age. Only one of them had signed up to any form of pension savings scheme. This was my flatmate, who I’d managed to bully into saving a few years ago – he now contributes a significant sum into a stakeholder scheme each month.

The reasons cited for this lack of saving were as follows:

  • I have to pay off my credit card, that’s more important.
  • I don’t know what a pension is or what it does.
  • I can’t afford to make any contributions.
  • My dad got ripped off by his pension, so I don’t trust them.
  • My employer won’t make any contributions for three years, so neither will I.

After that discussion, we resumed our talk about holidays, played with someone’s new iPad, while others swooned over some new shoes.

Come on, start saving

So, there are two sides to the pension story, and my quick straw poll is an indication of the challenge to get people saving for retirement. On the one hand, you’ve got young people who understand the importance of a pension and are doing something about it. And on the other, there are heads buried in sand.

The introduction of auto-enrolment pensions, which will force employers to offer a pension scheme to their staff, should sweep the inert and unengaged into a savings habit. And the National Earning Savings Trust (Nest), the government backed pension scheme that’s being offered to employers, should ease young people’s fears of a pension rip-off. Given the two extremes I’ve witnessed, it can’t come soon enough.

Are you putting cash away for your latter years? If so, when did you start and do you know how your pension’s growing?

P970 says:
26 March 2012

You’ve said that on the one hand people understand the importance of a pension and are doing something about it but on the other hand people are putting their heads in the sand.

You’ve clearly missed the point – the average person is not doing either of these things – the reality is that they do understand the importance of a pension – they just can’t afford to pay into one.

Erp says:
27 March 2012

there are a number of reasons why they don’t contribute as much as you think they should. First is, similarly to many issues facing consumers (I’ve just been pondering energy tariffs and whether to switch), it’s too flipping complicated to understand and secondly, complete lack of trust. Too many people have been completely ripped off by failed pension scheme, or schemes which have been whittled to a joke.

Frankly if I had known how badly those with a little savings would be treated by government – I would not have bothered – Why should I scrimp and save – making sacrifices – only to be treated with contempt in my old age.

I urge the young to force government to face up to their responsibilities of pensions and health care – and especially long term care. I honestly wish I had spent all of my money when I was young enough to enjoy it – rather than having it taken from me to pay for a sick bed that I thought was guaranteed free since 1948.

I really am bitter.and recommend no-one to trust government.

The Office for National Statistics has predicted that a third of those born in 2012 will live until they are 100. Looking after the older generation is going to be a lot harder and some of those who are working will have to do a lot more to plan for their future. Here are my suggestions.

– We need to do more to encourage saving. For many this is impossible because of credit charges, so getting out of debt is the first step.
– No-one should assume that their family will look after them in old age. If they do, that is a welcome bonus.
– Everyone in employment should be required to make pension contributions.
– Employers should encourage employees to make additional contributions if their pensionable service is less than it should be.
– Lump sums should be phased out in return for better pensions.
– Equity release schemes should be better regulated, so that the elderly are not cheated.
– The advantages of moving to a smaller, more energy efficient homes should be promoted to elderly individuals and couples who are currently living in large houses. This will help them save money and help avoid the costs/difficulties of maintaining a large house (and possibly garden).

Danny Cox says:
2 April 2012

All pension savers are faced with having to save more and retire later, on a lower income than their parents. And this is despite the State Pension rising to a flat rate – expected to be £140 a week – from 2016. Pensions are far from perfect but they still represent the most tax efficient way to save for retirement and are particularly good when an employer is also making a contribution.

For those unhappy with pensions, there are alternatives including ISAs which offer opportunities to save and invest for the future.

There is no doubt that those who save more for longer and keep their debts under control, are the ones more likely to be financially secure in retirement. Unfortunately for the average 20-30 year old (and I was no different) there are more than enough distractions for our money. This is why mandatory pensions starting in October 2012 are so important.