Young adults could be setting themselves up for financial difficulties in later life due to an unrealistic approach to pension saving in the near term…
Young adults could be setting themselves up for financial difficulties in later life due to an unrealistic approach to pension saving in the near term.
New research from Aegon UK has indicated that those aged 16 to 24 are hoping to retire with an average annual income of £64,000 – almost six times the amount their current financial trajectories would provide for.
To achieve a pension pot that would allow for a yearly income of £64,000, a 20-year-old would need need to save £500 a month with a five per cent return on their investments, assuming they are planning to stop working at age 68.
For those wanting to retire at 63, they would need to save £800 a month in order to achieve this expected income level. This comes despite the fact that reaching this goal would require a savings pot of nearly £1.9 million – significantly greater than the pension lifetime allowance – and the fact that 59 per cent of 16 to 24-year-olds do not contribute any money at all to their pension pots.
Indeed, of the various age groups surveyed for this report, 16 to 24-year-olds were shown to be least engaged with pension saving, with 70 per cent having never done anything to review or affect their plans for retirement, while 54 per cent do not know whether they are eligible to be enrolled into a company pension.
David Beattie, managing director at Aegon UK Direct, said: "We must remember that younger people have different financial priorities, such as saving for a deposit on a house or paying off student debt, and this can mean putting money aside for a pension doesn't top the list.
"What this age group has on their side is time, but it is important this doesn't lead to complacency."
It was also shown that older people tend to have more realistic pension expectations, with 25 to 34-year-olds expecting an average income of £45,000, while 55 to 64-year-olds hope to receive £30,000 from their pension pots annually.