Young people and pensions: a savings culture is urgently needed, argues International Longevity Centre – UK
‘Putting off’ retirement planning is placing young people at risk of a financially unsustainable future and society is failing to instil a savings culture in the young, says a new report, by the International Longevity Centre-UK (ILC-UK). The think tank argues that because the transition between adolescence and adulthood is generally increasing, we need a greater commitment to encouraging young people to think about and plan for retirement.
The report Resuscitating Retirement Saving: How to Help Today’s Young People Plan for Later Life, produced with the support of Prudential, examines the financial and economic circumstances of young people today, and considers the role of behavioural economics in nudging young people towards saving for retirement.
The report notes the trends which are likely to impact on long term saving, including increased longevity, fiscal problems caused by population ageing, an increase in flexible working, and growing care needs. In the future, most people will be enrolled in money purchase (defined contribution) rather than final salary pension schemes, requiring individuals to bear more responsibility for their retirement income. The report also points out that buying a house will become more difficult – arguing that an obsession with investment in housing may be inhibiting saving for a pension.
The report recommends:
- The development and promotion of a savings rule of thumb similar to the ‘5-a-day’ healthy eating message.
- Better promotion of existing incentives to save.
- Taking the opportunity provided by online financial services to make pension saving more accessible and as easy as online banking.
- The development of a ‘Plan B’ in case young people ‘opt out’ of occupational pensions saving after the introduction of auto-enrolment in 2012.
- The introduction of a compulsory choice between savings options – making young people exercise the power they seem to demand.
- Government should consider the introduction of a graduated state pension to reflect changing expectations around retirement.
Dr Craig Berry, Senior Researcher at ILC-UK and author of the report said:
“Planning for retirement may be an alien concept for many young people, but delayed transitions to adulthood in terms of owning a home, establishing a career and starting a family mean that young people need to start saving for a pension now. Crucially, however, government policy to encourage saving must be informed by generational perspective. If we are to get young people to save we must consider their financial and economic circumstances, alongside their behavioural traits.”
Minister of State for Pensions 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.”
“Automatic enrolment will make a dramatic difference, giving millions the opportunity to save in a work based scheme for the first time ever, with nearly a quarter of those eligible aged 22 to 30. And NEST’s investment approach will help them see their money growing and encourage them to keep saving.”
Rob Devey, Chief Executive of Prudential UK and Europe, said:
“It is never too early to start preparing for retirement and with auto enrolment we have a once in a generation opportunity to create a culture where pension saving is the norm for young people. If supported by engaging communication and efforts to boost financial capability we can begin to help this generation of savers secure the retirement they desire.”
Notes to Editor:
1. Resuscitating Retirement Saving: How to Help Today’s Young People Plan for Later Life will be available on the ILC-UK website on 8th June 2011. Advance copies are available for the media.
2. The production of Resuscitating Retirement Saving has been supported by Prudential
3. The International Longevity Centre-UK is the leading think tank on longevity and demographic change. It is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change. We develop ideas, undertake research and create a forum for debate. The ILC-UK is a registered charity (no. 1080496) incorporated with limited liability in England and Wales (company no. 3798902).
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