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How much do The Young Ones of today need to save?

Experts say Generation Y – those born between 1980 and 2000 – need to save 15% of their salary into a pension. But few are.


by Michelle McGagh on Jun 17, 2015 at 13:22

How much do The Young Ones of today need to save?

When it comes to savings young people should adopt the mantra of ‘ordinary things done consistently create extraordinary results’.

While pension freedom has turned the spotlight on those aged 55-plus, there is a growing concern that younger people are slipping under the savings radar and are heading for a retirement far less comfortable than the generations that have gone before them.

Alex Hoctor Duncan of fund management group BlackRock said young people had been sucked into a lifestyle of consumerism where it is easier to get into debt than save.

‘It is difficult for the first-time saver, for the last 30 years we have had a debt-filled lifestyle that has been created because it is easier to spend,’ he said. ‘It is easier to go into debt than it is to save.’

Hoctor-Duncan said that by the time 'Generation Y' – those born between 1980 and 2000 – reach retirement in 2035, they run the risk of being worse off than the generation that went before them, something which has never happened before.

Robert Gardner, co-founder of the financial education organisation RedSTART, said that in a decade, 75% of the workforce would be Generation Y and so a ‘long term vision’ for savings was needed to ensure those workers were putting enough aside for their own retirement.

‘Unless you are saving 15% [of your salary] you will not have a comfortable retirement,’ he said.

Gardner believes that ‘ordinary things, consistently done, create extraordinary results’ and that individuals do not have to be pensions experts or invest in high-risk funds in order to generate a decent-sized pension pot.

As the co-founder of pension consultancy Redington, Gardner said he has access to some of the best pension and investment brains but chooses to invest his pension in passive funds that track the large stockmarket indices such as the FTSE 100 and FTSE 250.

‘The important thing is how much I save and getting it right consistently,’ he said.

What you need to save

Although saving for retirement has been boosted by the introduction of auto-enrolment it is widely acknowledged that the 8% total contribution (made up of 4% employee contribution, 3% employer contribution and 1% tax relief) that workers will be putting aside in 2018 is not enough.

To match the living wage in retirement, which currently stands at £13,364 a year after tax, a person aged 20 earning £20,000 a year would have to save 12% of their salary, and save 8% if they earn £30,000 a year.

The saving figure increases substantially if a person leaves it until 30 years old to start saving; a person of this age earning £20,000 a year would have to save 17% to reach the living wage in retirement and a person earning £30,000 a year would have to save 12%.

Jamie Jenkins, retirement expert at Standard Life, said young people needed to engage with their pensions now, not just to save more but also to ensure they were up to the challenge of turning their pension into an income when they reached retirement age.

‘With auto-enrolment you can be completely disengaged – the contribution rate is sorted out for you and you sign nothing,’ he said. ‘Zero engagement is fine but at retirement you have to be engaged because you can make a catastrophic decision that undoes all the good you did over 40 or 50 years [of saving].’

Storing up problems

If those who are in their 20s and 30s today fail to save, the impact will be felt not just on their retirement but also the new generation of workers, of which there will be fewer.

Hoctor-Duncan said people needed to understand their own ‘personal liability’ in funding the cost of their retirement.

‘If people do not understand their personal liability then they are reliant on someone else [to support them in old age],’ he said.

‘If you look at [projected] population growth [for the UK] it will hit 75 million by 2050 [combined with] falling fertility rates then you will have a four-to-one ratio of working to retired people today that will move to [a ratio of] two to one.

‘Who pays is the [working] generation in 30 years’ time.’

12 comments so far. Why not have your say?


Jun 17, 2015 at 15:03

With longer life expectancy a quick rule of thumb is that retirement is half of one's working life. If net investment returns equal inflation over the long term, and the pension is to increase with inflation, then you need to save 25% of your salary for a half average salary pension.

The figures above are far too low, and I suspect that they are based on a fixed income pension

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Should Know Better

Jun 17, 2015 at 15:07


they now have to

pay off student loans

pay rent

save for a property deposit

feed and cloth themselves

and put money away for retirement.....somethings gotta give

Incidentally does the £13,364 include the State Pension or is that going as well?

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Jun 17, 2015 at 16:06

I'm not sure 15% of income will be enough to guarantee a comfortable retirement. After 40 years contributions they will have put away 6 times their average salary. As an index linked pension usually costs about 30 times it's annual payback, 6 times income would only return 20% of a wage in pension. Admittedly there should be rises in investment but there are also management fees and inflation to eat away at that. Is 20% of your wage plus the new state pension enough to live comfortably off. Don't forget as you won't be working you'll have a lot more free time to spend money.

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Jun 17, 2015 at 16:12

Should Know Better, Add in, for half them:

have a baby or two before thirty something and all that that brings with it, then either

take time out to care for child or

add cost of childcare.

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Rob Walker

Jun 17, 2015 at 16:14

Pointless saving early for a pension. It is not the priority for young people. The only ones banging on about it are those in the Pensions industry trying to drum up new business. A young family who saved up and bought a house in London five years ago is already enjoying real benefits now. What benefits do you enjoy with pensions contributions? There are smarter ways to cope when you retire by downsizing, saving later when you no longer have a family to support, and, if you're lucky, enjoying some inheritance.

Finally, of course, life has many twists and turns, deaths and divorces. Why deny yourself the best today for a pension that you may never fully enjoy?

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Tony Peterson

Jun 17, 2015 at 16:23


You have it spot on. Could these supposed "experts" give us some evidence of their past successes in the dark arts of crystal ball gazing?

Of course they cannot. They are trying to drum up business, as you say. Your advice is correct. Carpe diem.

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David Bitner via mobile

Jun 17, 2015 at 19:45

Whatever you earn save 10% I was told and more or less I've stuck to that. Saving into a pension is now easier and cheaper with capped charges, no commissions and employer contributions generally on offer through auto enrolment. Yes you have other commitments but that's the point. Most can find money for broadband, sky tv, mobile contracts, drinking, designer clothing on top of rents, mortgages, student debt etc. Spend most, save a little into your pension, cash and ISA. In 40 years time you'll appreciate the 480 times you'll have put money aside.

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Chris Strutt

Jun 18, 2015 at 09:40

Tony & Rob, while your points do make sense, is the risk really worth it? If you contribute £100 (costing you £80 due to tax relief) to a pension age 20 and you assume it grows by 1% per annum above inflation for the next 45 years, you will have a pension pot of £156.48 by the time you retire, in real terms. So if you start saving age 20, you almost double your money by retirement using a very conservative growth rate. Using a 2% growth rate it comes to £243.79. £50 per month of contributions for a year gives you upwards of £930 by retirement (at the 1% growth rate).

Compare that to past property rises and of course you are better off buying a house, however what if you don't want to downsize when you retire? What if you want to retire when the housing market is stagnant?

For me having your eggs in more than one basket is far less risky and saving when you are 20 is the perfect time, as many people do not have a family yet. £50-£100 a month is a good start which will (hopefully) not make too big a dent in your finances but provide a nice little nest egg for retirement, even if you just want to use it to buy a car or something with the tax free cash.

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John Griffiths

Jun 20, 2015 at 13:20

Early starting with a pension - when you start serious paid employment is the way to go. None of generation Y except a small number who are bankers/traders and will get large bonuses will be able to buy a house anywhere near their work in London and SE England. Property is great but it it not a panacea for saving - Chris Strutt is right not to put the eggs in one basket!

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Rob Walker

Jun 20, 2015 at 13:38

Maybe John, but you can't live in a pension (and you might die before one too). Fine to put surplus cash into a pension - or a charity covenant, or whatever - but most of generation Y should take the pension sales patter with a pinch of salt. I had 10 years of constant advertising from Equitable Life, 'smart' pensions investments from Hambro Life and Clerical Medical, the only real winners were the salesmen.

Priorities change with age, don't deny yourself what you need today for promises tomorrow - you may end up very bitter and resent what you have sacrificed along the way.

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Tony Peterson

Jun 20, 2015 at 21:22

Youth is a far bigger asset than wealth.

If you have it, enjoy it, and take no notice of those wishing to take their cut from anything you now might have to spare. Live for the day of your youth.

I roamed the planet and lived on a shoestring until I was 35. My old age is now far more secure than that of most of those who listened to the siren calls of middlemen and conmen such as those who are still urging us to keep them in the style to which they have become accustomed,

If, in your youth, you still manage a surplus, start a self select ISA.

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Rob Walker

Jun 20, 2015 at 22:46

Too right Tony. I've worked alongside those boring bu££ers who won't move jobs because 'The pension scheme is so good here' - and that's when they are in their 30's. It is amazing to see how people will distort their day-to-day existence for a secure job, a pension or a company car. This materialistic straightjacket kills the spirit and turns men old in middle age. Supporting them in their bid for risk-free mediocracy is the financial services industry, selling them pensions, life assurance and other 'products' appealing to the dual pronged weaknesses of Fear and Greed. We shouldn't let their insidious message sway any free spirits from enjoying those precious years.

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