A new survey has revealed that many people in their 20s and early 30s are put off saving for their retirement because of our ‘chaotic’ pension system.
The survey by the Office for National Statistics shows that 78% of 18 to 24 year olds and 43% of 25-34 years old haven’t saved a penny towards their old age. With many of them citing the confusing state pension as a reason. Half of the people in these age brackets said that they would save more if they understood how much they stood to receive from the state when they retired.
This report adds weight to the Government proposals to introduce an easier to understand, flat rate state pension, which would be around £140 per week.
The current system offers a £102.15 state pension, with additional mean-tested benefits. However, it has been widely criticised because it appears to favour those who have saved nothing over those who’ve saved a modest amount towards their retirement.
Pensioners can increase their pensions to £137.35 with Pension credits but only qualify if they have virtually no savings.
The Chartered Insurance Institute has already warned that the system will leave millions of people in poverty when they draw their pensions, and that there are over 2 million pensioners currently living below the poverty line in Britain today. The government has recently stated that there is a £9 trillion savings gap on the horizon.
A staggeringly low figure of 39% of men and 28% of women who work in the private sector are currently paying into a private pension scheme.
A poll published by the National Association of Pension Funds (NAPF), found that those under 34 would save an extra £50 a week if they could be assured that their efforts wouldn’t be held against them.
The Chief Executive of the NAPF, Joanne Segar, thinks that the new pension system will encourage younger people to save towards retirement: “The current system is a dog’s breakfast and makes it impossible for people to plan their future. Even pensions experts struggle to work out what they’ll get, so what hope does Joe Public have?”
She goes on to say that the new flat-rate system will help people decide how much they need to save, and that it should be put into action permanently and be left alone without ministers altering it further down the line.
“If [under 34s] could see the state offer might not be enough, they’d be more inclined to get their own savings sorted, partly to avoid working past an increasing retirement age” she added.
Head of Pensions at Standard Life, John Lawson agrees, stressing that younger savers must realise that £140 a week will not offer them a comfortable retirement. The Joseph Rowntree Foundation estimates that the minimum amount that a person needs per week to retire with a decent standard of living is around £200.
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