People are not saving enough, we hear that all the time. And yet we just move on.
Only half of us have a pension scheme¹; even allowing for other savings and investments most of us have probably not provided enough for our old age, especially given spiralling care costs as we live longer, but not necessarily healthier, lives.
The tough economic climate has forced people to cut back on life’s comforts; and there are many people simply living hand to mouth. Nevertheless, I believe we must get more people saving for their futures. Otherwise society becomes increasingly reliant on State Pensions, which I foresee will prove unsustainable in the longer term. To foot the bill we will need tax increases or spending cuts, we will lose talent and hence economic growth to other countries. Ultimately the UK will slip backwards on the economic world stage.
I therefore think it is socially irresponsible for any individual who can afford to save something towards their future, however little, to not be doing so, and doing so now. Of course, it is hard to classify who can - and who cannot - afford to save. No one’s view of “life’s necessities” is the same as anyone else’s. Having said that, it’s simply too easy to hide behind “I cannot afford to” and I feel that we should challenge that excuse.
For the price of a cup of coffee
In my view, if you can afford two holidays a year, or buy a couple of coffees from Starbucks or Costa every day (instead of boiling the kettle at work or taking a travel mug on the train), you could almost certainly afford to put some more money away. If from age 20 one of those daily £3 coffee hits instead went into a pension, this might provide £14k a year in pension from age 70².
The benefit rapidly decreases the later you start. So younger generations need to take responsibility for their futures now. I know your 20s are the time to have fun, but that doesn’t mean we can’t expect those who have got jobs and can afford the pub on Friday and Saturday night, to put a little away. When we allow for inflation, £14k a year is not a lot (just under £5k in today’s money) but an extra £400 a month could enable a little fun in retirement! ³
Better late than never
So is it too late for the 50 year old? Absolutely not.
Read the full article "Fighting the war against pensions apathy" (PDF 86.50 KB).
²Single life flat pension based on September 2014 annuity rates (assuming no cash is taken at retirement). Accumulated fund at retirement calculated using an investment return of 5% p.a. net of fees.
³Inflation assumed to be 2% p.a.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.