Young face crippling pension savings
By Alexander Jolliffe
Published: April 23 2004 21:56
Young people will have to put aside a cripplingly high proportion of
their salaries if they want to retire at 65, according to new research
which shows that most thirty-somethings will have to work well past
the state retirement age.
Research by John Chapman, an independent consultant, reveals in detail
the sums that savers would need to invest in order to retire at 65.
The figures show that even young people on above-average earnings
would have to invest big sums to retire at 65. A 30-year old earning
£35,000 a year would have to save £620 a month - or £7,440 a year - to
build up a pension equivalent to two-thirds of final salary.
"Such high savings levels are unrealistic relative to incomes," said
Higher savings are needed because people are expected to live longer
after the state retirement age. The average life expectancy of a 65
year-old man has jumped from 14.5 years in 1994 to 16.6 years today,
according to the Government Actuary's Department.
"Life expectancy is the fundamental problem. "But the
burden of investing enough is intolerable. Something's got to give."
Young investors also need to invest high sums because many employers
have closed their final salary pension schemes, which largely protect
members from investment risk and pay pensions based on length of
service and salary at retirement.
Many companies have replaced final salary plans with money purchase
schemes, but tend to pay much less into these funds. Employers
contribute 13.1 per cent of salary on average into final salary
schemes, but only 5.2 per cent into money purchase funds, according to
the Association of Consulting Actuaries.
Mr Chapman said his figures underlined the attractiveness of final
Mr Chapman said the majority who could not afford to invest enough
would have to work longer. A 30 year-old earning £35,000 a year could
cut their monthly contributions from £620 to £300 by working until 70.
"Most such savers are forced into working until 70, and even
then they could face savings . . . burdens [which are] unacceptable
for those with student loans to repay, mortgages and family bills."
- posted 15 years ago