Young people need to save 20% of earnings to match current retiree’s pensions

20 July 2017
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Young people need to save 20% of their wages in order to match the retirement income of baby boomers, a wide-ranging international study has found.

Think tank, the International Longevity Centre –UK (ILC – UK), which conducted research across 30 advanced economies, also found that young people need to save at least 18% of their lifetime salaries just to have an “adequate” income in retirement.

The report, which measures affordability, adequacy, and intergenerational fairness, found that low investment returns, low interest rates, slow economic and wage growth, and the demise of defined benefit pension schemes are to blame for a “hostile economic environment” for young people entering the workforce today.

The report found that only 12.5% of workers save more than 15% of their earnings for retirement, and that over 30% of people between the ages of 25-44 make no savings whatsoever. The think tank warns that this group of people are in severe danger of reaching retirement age with little to nothing to show for it.  

Despite the impact of auto-enrolment in the UK, which has seen nearly six million more people join a workplace pension scheme since October 2012, under auto-enrolment savers are only obliged to pay in 0.8% of their earnings. This will rise to 4% by April 2019 (plus 3% for companies and 1% for the government), but as the report highlights, 8% is still a long way short when it comes to building a sufficient pension pot.

Dean Hochlaf , assistant economist for ILC-UK, says: “The combination of persistently low returns, sluggish wage growth and a changing labour market means today’s young people will need to save more to enjoy their retirement. The government must do more to extend pension coverage and ensure that contributions towards private schemes are sufficient, especially amongst overlooked groups such as the self-employed and those on low incomes who have yet to benefit from initiatives designed to improve private savings.”

The report follows plans announced by the government this week to bring forward a rise in state pension age for those born between 1970 and 1978 - highlighting that people can’t rely on the state pension to fund their retirement.  

Comments

In reply to by anonymous_stub (not verified)

I get why you feel frustrated, especially as I don't live in the south east and am often left wondering if the south east is a different country which media types never leave. But this article isn't talking about generation inequality and isn't saying anything is unfair or undeserved. It is warning young people that they need to save serious sums of money if they want to have a retirement which isn't poverty-stricken. They see retirement today and think that's what they will have, but don't realise the lack of final salary pension schemes prevents that.

In reply to by anonymous_stub (not verified)

Interesting change....... just as we now find that the increases in average lengths of life have stopped rising (averaged over the period 2010-2015). This of course has been predictable for some time, but it is still being ignored by the media and government, who persist in extrapolating past trends. The great increase in obesity, lack of exercise, and resulting diabetes is just starting to pay an increased mortality dividend. Government will therefore reap a huge fiscal surplus from NI contributions in thirty years time, when it doesn't have to pay out all those pensions it currently thinks it will.

In reply to by anonymous_stub (not verified)

Female Born 1953 Started work aged 15 in 1969 and get my State Pension on 6th March 2018 aged 64 years 5 months 3 days. So all in all I will have worked & PAID into this so called benefit for an extra 3 years at the start, compared to those starting work today aged 18 + and due to pension age rises - twice for me - 7.1/2 years extra wait in total. WOMEN have suffered the brunt of these age increases. When my husband died I stood to inherit his Graduated & SP2 contributions on top of my pension, GONE, wiped out to pay the FECKLESS who think the world owes them a living. If you don't work and pay in (there will always be acceptable exceptions) then you should not be entitled to take money out. I paid into a private pension for 30 years, Heaven forebid then powers that be think I must be rich and take some of that also to pay the IDLE..............oops shouldn't give them ideas. To the young I say start saving, start at 5% for the first 5 years, 10% for the second 5 years until you get to the magic 20%. I started saving in the mid 1970's, £1 a week, sometimes less. It all adds up.

In reply to by anonymous_stub (not verified)

Spot-on Rose. I had to save/salary Sacrifice a lot more than 20% of my income to achieve provision for my wife and I and occasionally it necessitated some difficult decisions. The only difference I can see now is that we didn't have someone breathing poison in our ear.

In reply to by anonymous_stub (not verified)

I KEEP HEARING THIS STUFF ABOUT PEOPLE IN THEIR 50'S AND 60'S MAKING LOTS OF MONEY IN THEIR RETIREMENT. I HAVE EVEN BEEN TOLD BY ONE IGNORANT TEENAGER THAT HE IS PAYING FOR MY PENSION. CAN WE HAVE SOME PEOPLE TELLING THE ACTUAL WHOLE TRUTH ABOUT PENSIONS. FIRST OF ALL I AM 59 YEARS OLD AND I LIKE MILLIONS, HAVE BEEN PAYING NATIONAL INSURANCE FOR 43 YEARS NOW, THE TEENAGER WAS NOT WORKING AT ALL BY THE WAY. THERE ARE MILLIONS OF US WHO HAVE WORKED AND SAVED ON RUBBISH MONEY BEING PERSECUTED BY POLITICIANS AND THE MEDIA FOR LIVING LONG ENOUGH TO HAVE SOME OF WHAT WE HAVE PAID IN FOR. AT THE END OF THE DAY THOSE MANY ON MINIMUM PAY, WHICH DID NOT EXIST UNTIL 1998, WILL END UP WITH ABOUT £6700 PER YEAR PENSION FOR WORKING 50 YEARS. WE ARE NOT RICH AS YOU KEEP TELLING THE KIDS NOW. WHEN I LEFT SCHOOL IN 1974 20% OF MY INCOME WOULD HAVE BEEN £3 PER WEEK. I AM REALLY FED UP WITH BEING TOLD WE ARE STEALING FROM THE KIDS WHEN MOST PEOPLE I KNOW UNDER 30 ARE ONLY WORKING 20 HOURS A WEEK IF AT ALL. SO AGAIN IT'S THE ONES WHO DO WORK FULL TIME WHO PAY. WHEN I LEFT SCHOOL 45 HOURS WEEKS WERE STANDARD. AND I HAVE LOST COUNT OF HOW MANY 50-60 HOUR WEEKS I HAVE DONE OVER THE YEARS. BUT ALL THE SP2 I EARNED HAS BEEN TAKEN AWAY FOR A FLAT RATE SO WE CAN PAY THE SAME PENSION TO PEOPLE WHO PAY 30 YEARS NI AS TO THOSE WHO PAY 50 YEARS NI. THIS IS NOT AN AGE ISSUE IT IS AN ISSUE OF THE LOW PAID WORKER PAYING FOR THE NOT WORKING AND THE RICH TAX EVADERS.

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