We are used to hearing about the difficulty of engaging young people with saving for retirement. This research adds to that weight of woe showing that to achieve a similar retirement income to those currently retiring with DB pensions young people will have to save 18% of their income from the start of their career.
However, is the comparison a valid one and it would be interesting to examine some of these assumptions?
Most people retiring now, without the bedrock of a DB pension don't have the assumption they will need two thirds of their pre-retirement income in retirement. Whilst they may wish for it, in 2016 the ONS shows the average couple spend £22,000 a year living in retirement. If they are also in receipt of a maximum State pension each, this could mean a workplace/ private pension and other savings may only need to fund £6,000 income a year for that couple.
What isn't clear from this research is whether the 18% is the total contribution to pension or just the employee contribution. It is likely to be the total contribution and if so, then whilst 18% looks significant, for employers that are paying 10%-20% employer contributions into their employees' pensions - and there are quite a few of those in the UK - then an employee contribution of 8% looks more achievable.
One area often overlooked too is tax relief. For basic rate tax payers this will mean they get say an 18% contribution to their pension but by paying less as 20% tax relief will be added. Again this makes quite a difference.
Another factor that is not always examined when looking at young people's retirement savings plight is the fact that they, more than any other generation in the workplace, have time on their side. In the investment world, time is an important factor and can allow individuals to consider a different approach to risk, which in turn could deliver greater investment returns on their pension investments over their savings period.
And time is also on their side from a different angle. Life expectancy and health generally is increasing year on year and so the young people of today can expect to have longer working careers so giving them more time to accrue and save for retirement.
Undoubtedly, with the burden of student loans, a fairly flat investment economy and particularly for those in the South East, costly entry into the housing market, young people do have a lot on their plate when it comes to planning their savings.
But a little financial education and some well placed support to help them establish some sound understanding and financial planning habits from the outset will bear fruit in every budgeting, debt and savings decision for the rest of their lives.
Young Britons need to save 18% of salary for ‘adequate’ retirement Think-tank report says majority of people are not putting enough away into pensions