A savings model for life’s different stages

A savings model for life’s different stages

Suneet Chavda explores alternative savings vehicles for different stages in life.


Assistant Manager, Pensions

KPMG in the UK


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People need different savings vehicles for different stages in life. There is far too much emphasis on saving for the distant future given that people are living longer and retirement is therefore moving further away. The result is a generation that feels less obliged to start saving. Employers need to broaden their contributions beyond pension schemes if they want employees to save for every stage of life.

For the employer, expanding staff access to a wider range of savings vehicles helps it build a more paternalistic image. That helps retention and recruitment and that could give many businesses a competitive edge in this post-crisis era.

What a business actually offered might vary, depending on the employee’s age.

Those in their 20s should be saving towards a tangible asset like a house. It provides the buyer a base level of security for the future by maintaining or rising in value. Unlike most retirement savings that are locked away for years, people can enjoy it at the same time as paying towards it.

Neither the government nor employers are doing enough to support employees, in my view. Millions of people my age (I’m 26) pay more in rent than they would on monthly mortgage instalments. While the government’s ‘Help to Buy’ scheme makes mortgages easier to access, young people are still taking on high levels of debt.

Most companies encourage employees to put part of their monthly salary towards a pension and make a company contribution themselves, but why couldn’t this go towards a deposit on a home, or a mortgage payment for those in their 20s? This would help them pay off mortgages and debts quicker, allowing them to then save for the future in earnest.

For those in their 30s and 40s who, for simplicity, I assume own a property or other similar asset, the next logical step is to put some money into an Individual Savings Account (ISA) or other savings accounts. These provide a good middle-ground between tying money up for the distant future and having it sit in a current account. The money in such products can be used in later life, but also retain the flexibility to be accessed today. If employers could back such a scheme in the form of monthly contributions – in a Corporate ISA for example – I think people will be more engaged in saving.

Genuine pension or post-retirement saving should begin at age 40. It would be fair to assume at that point most people should be more engaged in thinking about saving for retirement. Some may say that 40 is too late to start saving for a pension, but with the estimates of future retirement ages potentially increasing, many of these people could still be working beyond 65.

Post April 2015, pension savings will be far more accessible and flexible. This presents a timely opportunity for companies to expand their employee benefit offerings, allowing their workforce to make more empowered decisions about their futures in accordance with their current life stage. This can only be a good thing.

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.

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