12 July 2006 - Young workers must change their saving habits or risk poverty in older age – Purnell
Today’s twenty- and thirty-somethings will live longer than previous generations. But if they don’t change their saving habits, they risk becoming the live fast, die poor generation, Minister for Pensions Reform James Purnell said today.
Speaking at an Institute of Public Policy Research event, Mr Purnell said that in just five years, since 2000, the proportion of 20-29 year olds contributing to a private pension has fallen from one in three to one in four. In contrast, figures for their parents’ generation remained unchanged over the same period.
James Purnell, Minister for Pension Reform said:
“At the moment young people are acting as if they expect to be able to fund a longer and longer retirement with less and less saving. It is striking how fast time spent in retirement is lengthening. In 1950, the average retirement lasted about ten years. Today it’s around twenty. In 2050, if we didn’t increase the State Pension Age, it would be around twenty-five years.”
The Pensions Commission estimated that 3.7 million people aged 26-35 are either under-saving, or not saving at all. Mr Purnell told the audience that the Government is determined to change this.
“We believe that our reforms make it easier for people to save. Auto-enrolment will tackle the inertia which can stop people saving. Personal accounts should also deliver an improved return on someone’s savings,” he said.
“A median earner saving into a personal account from age 25 should see the rate of return on their savings roughly doubled as a result of our reforms. It is important that we communicate the message that we are making it easier for people to save, and that it is worth them saving under our reforms. The reforms will help us to create a culture where people start saving earlier and realise that they can combine it with spending for today.”
- A person saving around £10 per week from age 22, with constant lifetime earnings of £19,000, could expect to retire at 68 with a pension fund worth around £69,000 in today’s earnings terms.
- If they delayed starting to save until age 30, their pension pot would reduce to £55,000 – and if they delayed until age 40, it would go down to £38,000.
Notes to Editors
- James Purnell was today speaking at an IPPR event: Young and Responsible? Young People Pensions and Savings, at the Design Council.
- The Department for Work and Pensions published its White Paper on Pension Reform – Security in Retirement: towards a new pensions system, 25th May, 2006.
- Copies are available at http://www.dwp.gov.uk/pensionsreform/
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