What will encourage young people to plan for their retirement income?
Being financially secure after giving up work requires years of saving and planning, so that money put into a pension has time to grow sufficiently. However, new research suggests that young people are not giving themselves the best opportunity to have an adequate retirement income, with 53% of 26-35-year-olds not yet saving for retirement.
Interestingly, of 18-35-year-olds, men are more optimistic than women, expecting to amass over £110,000 by the time they retire compared to £82,000 for women. This could be a reflection that auto-enrolment hasn’t solved retirement gender inequality.
Reasons for not saving will vary between individuals, but the inability to access the money saved into a pension before the age of 55 appears to be a particular deterrent, with 54% of people between the ages of 18 and 35 admitting they would start saving or save more if they could also use the money to purchase a house.
Rising house prices have made it increasingly difficult for first-time buyers to raise enough money for a deposit, let alone have spare money for retirement saving. Government assistance can boost incentive to save, however, with 42% of respondents confirming that a kick-start payment would encourage them to put money aside for retirement – therefore a campaign highlighting the generous tax relief on pensions may be of use.
Although the tax relief is a key reason saving into a pension is so efficient, it’s possible many people do not know about it, as 86% of respondents believe that there needs to be further teaching about pensions, and almost a quarter would be more likely to save if their understanding of pensions was stronger.
The timing for this is critical, as almost two-thirds of people are concerned that they will have insufficient funds in retirement.
These figures suggest that younger people desire more flexibility with savings, so they can access the money during times of illness or financial struggles. With a new pensions minister now in office, could younger people drive further changes to pensions?
How much do you need to save to retire with £100,000?
As with all forms of saving, the earlier you begin the less you need to save each month. Let’s say the target is to retire at the age of 70 with a £100,000 pension fund, and 5% growth is achieved:
- If you start at age 45, £223 needs to be saved each month
- If you start at age 35, £135 needs to be saved each month
- If you start at age 20, only £72 needs to be saved each month
However, the other consideration is how much that will provide in retirement income. If inflation is 3%, in 50 years £100,000 will have the spending power of just £22,000 today. To mitigate this, it’s important to adjust contributions in line with inflation or pay increases.
Do you think pensions could be more appealing to younger people? Let us know with a comment below.
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The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article. For our latest information and news, please see our articles section: https://www.portafina.co.uk/whats-new
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