Pension provision is certainly high up in today’s political agenda and recent UK wide strikes protesting against public sector pension plans demonstrate the strong feeling on the subject.
Whilst no one denies the importance of saving for the future, many people (especially those under 35) are often torn between contributing to a pension and saving a deposit to buy a home. In the majority of cases doing both is impossible, so which is the right choice?
With changing demographics there is no denying that saving for old age is extremely important. The number of older people in the UK is rising and this is altering the balance of the population. Ultimately there will be less money in the state pot to care for older generations and fiscal responsibility for old age will lie increasingly with the individual.
In an ideal world this wouldn’t be a problem. People would leave university, get a job and start paying into a pension. In the past, many started contributing to a pension as soon as they started work, often in their teens. Today however, people are often in their thirties before they start contributing. According to the Office for National Statistics in 1997, 52% of male employees and 37% of female employees belonged to a private sector pension scheme; by 2010 this had fallen to 39% and 28% respectively.
Although organisations such as the International Longevity Centre UK are lobbying to bring awareness to the need for young people to start saving for retirement sooner, many people in their twenties don’t know which is more important – a pension or a property.
With university fees now as much as £9,000 per year it is only the most frugal or privileged students that are able to leave education without significant debt. With loans deducted at source, today’s twenty somethings are often on the back-foot before they even open their first pay slip.
According to The UK Graduates Career Survey, the average starting salary expected by graduates in 2011 is £22,600, or roughly £1,400 take home per month. Once any student loan is deducted and rent, food, gym membership, mobile phone and bills are paid, only limited funds remain. The choice whether to plough this into a pension scheme, or set it aside to save for a deposit on a house is a tricky one.
In some cases the mere scope of the challenge is so enormous that it puts people off making a choice. Even thinking about putting enough money aside to save a £15,000 deposit, or channelling the recommended percentage of their salary into a pension, discourages some from doing anything. Instead they end up doing neither and spending their money on more instantaneous gratification.
In answer to this quandary, more education surrounding pensions is definitely needed, along with a greater understanding and sympathy to the financial demands now placed on our younger generations. The problem isn’t going to go away and the difficulty of saving for both retirement and property will continue. Many argue that ultimately a roof over your head will always be an investment for the future, but should this be at the expense of a pension? For now there is no clear answer. Maybe the best mantra should be ‘every little helps’. Sacrificing a morning coffee fix and putting as little £20 into a pension each month could provide a firm base to build on in your 30s and 40s. Saving a deposit for a house is much shorter term challenge so a bigger sacrifice may be needed. However, with perseverance, an in-depth understanding of where you can make savings on monthly outgoings, and the help provided by Government Homebuy schemes, saving for a deposit may not be as impossible as it seems.