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The Actuary The magazine of the Institute & Faculty of Actuaries

Pensions pressures highest on young people

The Chancellor has announced in his Comprehensive Spending Review that contributions to public sector pensions will have to rise, but the detail of where the burden will fall has yet to emerge. More notably, he has decided to bring forward the increase in state pension age to 66 for both men and women within a decade. This all means that most people will have to work longer or save more to have the same expectations in retirement.

Saving more will be tough for the young, who are also now facing the pinch prospect of rising tuition fees for their higher education. Personal debt, currently standing at around £1.5 trillion, is likely to rise as students incur greater debts through university. This will only delay the time that a student can contemplate saving for retirement through a pension.

The Actuarial Profession has calculated that debt-strapped students now delaying saving until they are 40 would have to invest 38% of their salary to achieve a pension of just half of their final pay from the age of 66 even if investments earn 4% a year above inflation. If investments only earned 2%, they would need to be investing an impossible 50% of their pay.

Commenting on this, Peter Tompkins of the Profession, said: “These figures are stark and paint a worrying picture for young people. Pensions and retirement age are a very emotive issue; the scenes in France demonstrate this. Our concern is that if the abilities of people to provide adequately for their own future are hampered then attempts to move pensions responsibility to the individual will also suffer.”