13 July 2006
Today's twenty- and thirty-somethings risk becoming the live
fast, die poor generation if they don't change their saving habits,
according to the Minister for Pensions Reform James Purnell.
Speaking at an Institute of Public Policy Research event earlier
this week, Mr Purnell said that in just five years, since 2000, the
proportion of 20-29 year olds contributing to a private pension has
fallen from one in three to one in four. In contrast, figures for
their parents' generation remained unchanged over the same
period.
Mr Purnell said: "At the moment young people are acting as if
they expect to be able to fund a longer and longer retirement with
less and less saving. It is striking how fast time spent in
retirement is lengthening. In 1950, the average retirement lasted
about ten years. Today it's around twenty. In 2050, if we didn't
increase the State Pension Age, it would be around twenty-five
years."
The Pensions Commission estimated that 3.7 million people aged
26-35 are either under-saving, or not saving at all. Mr Purnell
told the audience that the Government is determined to change
this.
"We believe that our reforms make it easier for people to save.
Auto-enrolment will tackle the inertia which can stop people
saving. Personal accounts should also deliver an improved return on
someone's savings," he said.
"A median earner saving into a personal account from age 25
should see the rate of return on their savings roughly doubled as a
result of our reforms. It is important that we communicate the
message that we are making it easier for people to save, and that
it is worth them saving under our reforms. The reforms will help us
to create a culture where people start saving earlier and realise
that they can combine it with spending for today."
According to the Department for Work and Pensions, a person
saving around £10 per week from age 22, with constant
lifetime earnings of £19,000, could expect to retire at 68
with a pension fund worth around £69,000 in today's earnings
terms. If they delayed starting to save until age 30, their pension
pot would reduce to £55,000 - and if they delayed until age
40, it would go down to £38,000.
