4 reasons why people ignore pension saving in their 20’s
For many of us, retirement will seem a long way off. So far in fact, that we don’t even want to think about it. This mindset of deferring any consideration for how we will live in retirement will be most prevalent for those in their 20’s. However, whilst retirement income planning may seem like a distant, and lets face it, rather dull topic to be thinking about, it is hugely important if we are to enjoy a decent standard of living in retirement. Of course, a decent standard of living in retirement must be paid for which means as individuals we all need to save for the future. Whilst this all seems rather logical and straightforward, the fact of the matter is that millions of us are either not saving enough or in many cases, not saving at all for retirement. Moreover, the younger you are, the less likely you are to want to have to think about saving for retirement. The lack of retirement saving by those in their twenties can be blamed on sheer ignorance, but in reality it is much more complicated that than that alone. Here are some of the more likely contributing factors…
As a society, we have been riding a wave of cheap and freely available credit that came crashing down in 2008, after the banking crisis. This has lead many of us to accumulate large, often unsecured debts which are now having to be repaid. Rather than saving for the future, people were just spending, buoyed up by over a decade of continuous growth in the economy, with rising levels of employment and wages. Even during the boom years, pension saving hardly rose at all as we all enjoyed living in the here and now. Now those years have ended and people are left to count the cost of their free spending, pension saving is even less popular Wages are now more or less stagnant and unemployment has risen substantially which has left the prospect of saving for retirement even harder to comprehend. In short, many people are struggling just to meet day to day expenses so saving for the future is completely out of the question.
Lack of Company pension scheme
Another factor which must take a large share of the blame is the fact that many companies do not have a pension scheme in place. Indeed, over the past twenty five years, many companies have been closing their gold plated final salary pension schemes in favour of less expensive defined contribution schemes. As these are far less lucrative to the employee, unsurprisingly perhaps far less people decide to join the scheme, particularly younger employees on lower incomes. In fact, pension saving has become such an issue that the government is now rolling out the auto enrollment programe which compels employers to offer a basic contributory pension scheme to all employees.
Mortgage / Rental Costs
As well as a general lack of disposable income, many people are struggling with mortgage or rental repayments. This is for the vast majority of people, the largest monthly outgoing. With average property prices well above the amount of money that can be borrowed with two people earning an average income, many people end up stretching themselves when they make a property purchase. For example in the UK the average house price is around £161,000 whilst the average salary is just £22,000. So two people earning £22,000 borrowing the maximum three and half times their salaries will only reach £140,000.
As well as property prices rising, rental values have also risen steadily throughout the recession. Moreover those who are renting are far more likely to want to save for a house deposit rather than their pension.
Pensions on the whole have not had a good press of late. First there was the selling scandals which broke in the late 1980’s and more recently are the stories of retirement incomes being slashed on the back of lower annuity rates. This has left many people deciding to bystep their employer’s pension scheme in favour of making their own arrangements. Whilst this allows people to maintain control over their money it does also mean that they cannot benefit from employer contributions.
The government is trying to address the lack of pension saving by the younger generation. However with rising tuition fees, stagnant wages, lower mortgage approvals, and rising rental values the odds are not stacked well in their favour.
Simon is an expert finance writer specializing in retirement income planning. He is the proprietor of annuity specialists 123annuityrates.co.uk, the place where seniors can get the highest pension quote.