From education to employment

Minister for Pension Reform fears for Retirement Burden of 20 Somethings

The future wealth of the young people of today came in for comment this week from the Minister of State for Pension Reform, James Purnell MP, who sees bad habits taking hold and threatening hard times ahead in retirement.

Speaking at an Institute of Public Policy Research (IPPR) event yesterday, Mr. Purnell raised the spectre of poverty in retirement and called for a change in saving patterns. This will be especially necessary, according to Mr. Purnell, as today’s youth is likely to live longer thanks to improvements in standards of living and better health care and education. There is a real risk, according to Mr. Purnell, that a large number will fail to cater for providing for the extra years of retirement.


The figures make for very troibling perusal. One person who decides to begin saving, and saves at a rate of around £10 per week from the age of 22, with a constant lifetime earnings level of £19,000, would then expect to retire at the new age of 68 with a pension pot of around £69,000 in today’s earnings terms. If this saving pattern were delayed until they were 30, this pension pot would dissipate to £55,000; and if the delay were to stretch on until 40, the steam would drift away from the bubbling pension pot reducing the piping hot water to just £38,000. The Government has committed themselves to one campaign that could offer significant improvement in the position ““ remaining in education or training can improve employability and also improve salary levels, and schemes such as the Education Maintenance Allowance (EMA) will incentivise the short term benefits of training so that the long term benefits may be enjoyed.

The message would appear to be falling on deaf ears, however. The number of 20 – 29 year olds who are currently contributing to a private pension fund outside any national contribution has fallen from one in three to one in four, whilst the figures for their parents” generation appear to have remained constant. The Pensions Commission has announced that they estimate some 3.7 million people aged between 26 and 35 are either under saving or in fact not saving at all.

Mr. Purnell Warns of Poverty Stricken Future

Mr. Purnell commented: “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 Government, Mr. Purnell claims, is starting to tackle this problem. He continued: “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. 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.”

Don”t Gasp”¦

With all respect to the Right Honourable Mr. Purnell MP, the nation will hardly be sent spinning into despair with shock at the thought of the future payments burden that young people face today. After all, it can hardly have escaped anyone’s attention that rises in prices and the growth of a credit ““ fuelled consumer based economy has led to a reduction in the rate of saving. If your income is x and an item, product, house or somesuch costs x and is necessary to purchase, then either the money to be saved comes from y, or Narnia to give it another name; or else it comes from a loan or credit card, which leads to interest payments. This is the system that Britain’s “mighty” economic position is built on, and it would appear likely that the Government is well aware of this.

The indication that figures for the older generations remain unchanged is hardly shocking either. After all, the bulk of the consumer revolution that we have “enjoyed” has been focussed on the young market as they were possessed of a greater quantity of “disposable income”. This disposable income has not come from a magical tree in Fangorn that Gandalf might climb to escape Orcs, nor has that mythical mixture of giraffe, lion and sloth ““ a “Gelisloth”, so to speak ““ trotted up on three toed paws like some bizarre genetic mutation of a husky to offer succour in times of need.

The disposable income comes from young people remaining at home for longer, as they cannot afford to embark onto the housing ladder ““ why else would the Government have proposed the scheme that offers up to 25% support in house purchase? Forcing young people to save is one way to address the problem ““ but one does wonder how the consequent drop in expenditure will affect the economy. Given that these young people would be the adults who might participate in adult education in the next ten years, and given that much of adult education will need to be paid for by the individual, one sector ““ specific consequence could be a decline in adult education that simply spirals out of control.

Jethro Marsh

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