No wonder the kids are screwed
Sitting on the train for the past few days commuting to a client site in Central London has given me plenty of time to browse the daily news articles for a healthy dose of doom n gloom. My current favorite is the Daily Mail, not for it’s journalistic ability.. but for the pure entertainment factor generated by the comments section. One mention of the EU and quickly thousands of comments appear shouting the praises of UKIP and how we’re about to be flooded by immigrants. Similarly; any article about savings and pensions will generate an almost equal overwhelming response typically along the lines of
“Spend it all now because otherwise the government will steal it and you may as well just live off the state”
Such solid and well founded advice. And yet, it isn’t just one or two anarchists shouting this.. pages upon pages of comments flood in on every relevant article offering their opinions of the great pension ripoff. At first I thought it may have just been limited to this particular news establishment, however the same pattern followed on other well established sites such as the BBC and ThisIsMoney. It’s no wonder so many young adults choose to shun pensions and YOLO themselves into debt given the daily tide of misinformation thrown towards them.
The government has tried to step in with their usual half-assed approached and have now almost completed the rollout of automatic enrollment for company pension schemes. The problem is that the amounts required simply aren’t nearly enough to generate the retirement income many have imagined they would receive. Most major businesses in the UK are starting out with a 2% matched contribution, eventually raising to 4% matched. Try telling any 20-something to plug 8% contributions into a retirement calculator and watch their face fall as the images of retirement cruises are quickly dashed. By setting up the auto-enrollment scheme at such a low contribution level, the government have effectively indicated that this is the contribution level required to retire comfortably. I’ve seen huge amounts of marketing around auto-enrollment.. and yet not a single government produced piece which actually says
“Yeah, 4% + 4% is a good start.. but you damn well better be saving elsewhere or increasing that base level soon“
But they aren’t, and so the young adults are off spending their remaining 96% disposable incomes on consumer crap. Even worse: Many won’t realise the problem until it’s far too late. I’ve got friends who don’t bother opening letters from their banks… there’s no way they are going to bother with the one from a pension provider they’ve probably never heard of.
Is there hope?
Even IF you can bring yourself to spend just a little bit less each week to put more into your pension.. and IF you manage to wade through all the hysteria.. and then IF you can navigate your way through the company’s pension site… We are soon hit by financial information overload. I’m in the process of registering for my company’s pension scheme and they offer no less than 274 different fund choices with no steering towards any recommended options.
Being the semi-knowledgable guy I am with regards to finances (at least I’d hope so) I tried ranking the funds by charges. No dice: The lowest was 1% with the highest an eye-watering 3.23%. I know there are passive index funds available for less than half of that amount. Next I tried to make sense of the naming schemes to try and work out the sort of areas each represented. A valiant effort but thwarted by such tongue twisters as the Aegon MI Workplace Savings H and the SE Abs Return Cautious Select Portfolio.
Income/Accumulator, Global/Domestic, Lifestyles/Tracker, Cautiously-managed/Defensively-managed. It’s an insane ask for people frequently right at the beginning of their careers to be able to decyper and decide upon all this. I suspect I’ll eventually wade through the choices and go for either a UK or Global passive equity index tracker.. however I can certainly see why many will just pack the whole thing in and go back to blowing it down the pub each week.
Cheers!
What do you think could be done to help the situation? Or should we just accept that many elderly will eventually end up living on state handouts and focus on providing that instead?
11 thoughts on “No wonder the kids are screwed”
The auto-enrolment of 2-4% is very low but has captured people who would otherwise save 0% in their pensions. It’s better than no savings at all so I think it’s a small step in the right direction. It’s true that not enough information is out there to advise people that merely saving 4% is not enough but I feel that to tell people now may have them not bothering and opting out of auto-enrolment entirely.
The next step the government needs to do once all auto-enrolment is in place is to educate and persuade people to save more and explain why it makes sense to save more, that the state benefit will not be enough for all to live on comfortably.
I have a friend in her 40s – she used to work with me but never joined the company defined benefit pension, despite working with me for over 10 years. She’s now with another company and I know she hasn’t enrolled onto their pension scheme either because she says “they’re all a con!” It’s possible she reads the Daily Mail but I think she bases her opinion on the paltry private pension her dad gets.
To preserve our friendship, I tend not to talk about pensions to her any more but I occasionally mention that I want to retire early. I’m waiting for her to ask how I’m going to do it!
Good luck with choosing funds for your pension plan!
Hi Weenie,
I do hope they take a next step and educate/encourage others in increase the contributions however I fear that message may be lost after the elections next year.
I have a few friends who are very anti-pension. They know im interested in that area and will gladly offer advice if they ask for it, however I have stopped trying to influence their decision as they’ve already made up their minds about pensions being a big scam. It’s a real shame, especially as the company matched contributions are literally free money.
I’m extremely lucky in that i’m part of a final salary scheme – if I get halfway to where I want to in my career I will retire on more than the current average income, let alone pension. I’m still saving about 30% of my net salary in an ISA and will begin trickling money into a SIPP following my next payrise. It terrifies me how many people have not one idea about pensions, let alone the nous to start contributing. My biggest fear is that the taxpayer will simply pick up the pieces when we inevitably see hundreds of thousands of pensioners in poverty.
Hello Edmund, you are lucky indeed!
I suspect the government will continue to pick up an ever increasing share of the burden. What happens next I’ve no idea, its certainly not sustainable.
Great article ERG. The situation does seem a little bleak at the moment but I’m hopeful that eventually the notion that saving for a pension and planning for retirement should be a priority will seep its way into the public consciousness. There are several factors that must surely persuade young people that they do need to think about this, not least being the raise in the age at which they will be getting state pension. I agree with weenie about the need for people to understand what the levels of state pension actually means from the point of view of quality of life but it’s very difficult to persuade people to think about what they will need in their 70’s when they are struggling to get buy a house, have kids etc in their 30’s. I suspect we might have to see a generation suffer badly from poor planning before the general population takes this on board.
I too am lucky enough to have a final salary pension which, although it is not enough to live on alone, it does mean that I will be fine once the state pension kicks in. Someone did my thinking for me pension-wise just by the very fact that I took the job I did. For that I am very grateful. Even more pensioners living in poverty (there are actually far more women than men in this situation) would be a shameful thing. Social planning is the responsibility of the government. Hopefully the politicians will realise this eventually and put together a decent public information service with regards to pensions to offset all that Daily Mail irresponsible nonsense.
(Personally, if I had my way, I’d up the NI and do the State Pension properly, but we don’t live in that kind of socially aware culture any more. The situation we have is the result of letting people do what they want with their own money and think for themselves :-))
Cerridwen – I’m with you on the increased NI level. It seems like a no brainer when so many people are currently (and forecasted to be) reliant on state pension. Perhaps they should be set at a level which would return a state pension amount equal to minimum wage? Although I doubt any government would be brave enough to propose the large tax increase that would require.
I’d take auto-enrolment one step further and make it compulsory, with no opting out unless you can prove that you are already saving into a private pension/SIPP! Some people obviously can’t think for themselves! :-)
Ah a slippery slope! Although that is kind of the point of National Insurance already?
Generation Y should be perfectly capable of saving adequately into pensions, but unfortunately for them they were born c1990, not c1940. There’s the issue of 30k+ Uni Debt, fierce competition for jobs and wages lagging behind inflation. If they manage to get a job so they can start contributing to a pension, they might like to save a deposit for a home at 8 x one salary. while simultaneously paying the pension of (sorry, rent) a BTL Landlord. Marriage, kids…? There’s too many mountains to climb. To get them saving, we need to scrap uni fees and get housing back to 3-4 times one earners salary. The elephant in the room is the State Pension. I’m Generation X and I’ve been told my pension age is now 67, but come on, no-one in government wants to say it on their watch, but there simply isn’t going to be a state pension is there?! The numbers just don’t add up anymore. I agree with Cerridwen that I would gladly pay more tax and NI if I knew it would keep the Ponzi scheme state pension afloat for all, but cost of living in key areas (housing, education) has to drop because we all need to be saving a lot more than we think we do to make up the state pension shortfall.
Hands up, I’m lucky enough (had the foresight to take a corporate job in a private sector company) to have a final salary scheme pension. It feels like a lottery win and I have nothing but sympathy for the generations below me. There is hope if Gen Y can learn some hardcore FI skills from the outset, and immediately come to terms with the fact that they will never have the lifestyle their parents, and especially their grandparents had. Or maybe that’s the problem, they see it clearly and the motivational “carrot and stick” has been moved too far out of reach already.
Hello Starla,
I’ve got to disagree with you on the uni fee point. The fact is that unis are not free and someone has to pay that bill. If uni fees were scrapped; its a bill which would need to be picked up by the tax payer. I’ actually think the current loans system with an artificially low interest rate and repayments entirely based on earnings level is the fairest way we can do it.
As for 8x a single income for housing; speaking to my colleagues at work.. many of them had to buy their first homes with partners or close friends. And that was several decades ago. I don’t think we’d ever have enough housing stock in this country to even begin trying to offer it to single purchasers for anything other than a small flat.
I totally agree about the state pension however. In it’s current form it’s just not sustainable, and i’d be surprised if its anything other than a soup kitchen by the time I reach state retirement age.
Very interesting read. thank you. It reminds me of a book I just finished that is very relevant to this article titled “Build Wealth and Spend It All” by orthopedic surgeon and millionaire entrepreneur Dr. Stanley Riggs. Dr. Riggs shares personal experience relating to what will happen to your money once you are too old to enjoy it, and how to strategically spend and enjoy it before that happens. I am responsible for my families financial situation and take every opportunity I can to teach myself planning and strategies for financial gain and stability. A lot of financial help books go over my head so I truly appreciated the way Dr. Riggs writes on a personal level, it is a very down to earth and relatable read with some really practical strategies.
Check it out: http://buildwealthandspenditall.com