My report for ILC-UK on how to help young people start saving for a pension.
‘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.
Click here to access the full report.
Image: Buzz Hoffman