Over expectation and under saving are the two financial factors that are set to blight retirement for millions.
The problem is straightforward – most people expect a comfortable retirement with enough money to continue to finance the lifestyle they have from working, but they are not saving enough to pay for their dreams.
The latest influential economist to voice these concerns is Bank of England rate setter Martin Weale, who sits on the bank’s monetary policy committee.
He argues that the UK has a record of spending too much rather than saving, and despite the likelihood of living longer and increasing affluence over the past two decades, few have taken heed to save enough for the later years.
“Britain’s consumption needs are expected to rise in the future and, in the nearer term, saving is needed to make this possible,” he said. Weale is concerned that increasing consumption without an equal rise in savings will lead to an economic imbalance.
“This will create pressures to transfer resources from young people to old people reducing the consumption of the former to support the latter. So either young people or old people will find that they cannot consume as much as they might hope,” he said.
“Restoring the savings relationship of the pre-crisis years would reduce the required fall in consumption by over three percentage points, but such a cyclical improvement would come about only if income were to rise faster than consumption; it is unlikely that this could be generated by a purely consumer-led revival.”
Weale also explained a quick, sharp rise in the age the state pension starts will only lead to financial difficulties for many who will not have enough money.
“Since no-one expects working lives to rise to this extent in the short term it follows that a bigger increase will be needed in the long term. We probably need to save more as well,” he said.
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