Iona Bain, founder of Young Money Blog, shares her views on why pensions are a turn off for today’s 20-somethings.
When I started blogging about young people and money back in 2011, I was immediately faced with a major dilemma. Do I discuss the boring and often complex world of pensions and if so, where on earth do I begin? Can I make it relevant and helpful, or should I tell the truth about pensions as I see it, even if I was met with strong disagreement?
It’s hard to get young people interested
You see, I knew mentioning the ‘p’ word would seriously undermine any attempts to get young people switched on to money through my blog.
My suspicions were rather grimly confirmed by a recent discovery that any pension article, no matter how carefully researched and argued, would be among the least viewed on my blog - by an absolute country mile.
This stands to reason. As any politician will tell you, sacrifice is a hard sell. Preaching to young people that they need to give up money for the future rubs up against the strong, appealing messages around materialism and hedonism that are pumped at us from all directions. We form strong consumerist aspirations from a young age, priming us to prioritise whatever will get us onto the next rung of social acceptability.
I am not alone in thinking short-term; do I have enough money this month? How much should I spend on that wedding present? What kind of work do I need to get to keep my income ticking over?
Is saving for a pension actually worth it?
Of course, there is much research showing that Generation Y can and does save for tomorrow. It’s just that we are saving for tangible, understandable goals; a home, a car, a wedding. Pensions, by contrast, are a promise of an unspecified income forty or even fifty years down the line.
And here is where I come onto my fundamental gripe about pensions. They are, of course, admirable and potentially life-saving as a concept but have been intensely flawed in their realisation.
Firstly, the disappearance of final salary schemes has been devastating for the general cause of pensions, and the returns now on offer from defined contribution schemes have made many question whether their sacrifice has been worthwhile.
Indeed, the Daily Mail’s money section has just reported that thirtysomethings who save into a private pension will typically end up with an income just £271 a month - barely enough to cover household bills.
Pensions are inflexible and don’t reflect real-life
People have asked whether there are more flexible ways to save for the long term using regular savings and investments. For instance, in New Zealand, first-time buyers have been allowed to access funds from their pension to get on the housing ladder as part of the Kiwi Saver Scheme.
But here in good ol’ Blighty, policymakers and the pensions industry seem blind to the ridiculous cost of housing today and how this undermines efforts to get us saving for the future.
There is an uneasy realisation among young people that huge amounts will be wasted on renting rather than put into a fairly solid investment that doubles up as a secure home. That’s why, for many people, the money coming out of their pay packets every month under auto enrolment could, in time, prove unpalatable.
It doesn’t help that the financial industry often gives blanket advice to put every spare penny into either an occupational pension scheme or a private pension without any consideration of our personal circumstances (do we have savings or debts we need to pay off?)
Prioritising property over a pension
Few people my age understand the tax benefits involved with saving into a pension; certainly they are harder to grasp than the simple tax-free status of ISAs, a consistently popular savings vehicle among 20- and 30-somethings (even if interest rates have left a lot to be desired in recent years).
So no, I don’t have a pension right now. I put my money towards buying property, and I now have a decent five figure sum in savings. I am also looking to invest through my stocks and shares ISA. All in all, I feel optimistic about my financial future.
And I can’t help but compare my situation to that of a former colleague who admitted that saving into a pension for 16 years will only bring £9,000 in income at retirement due to her “tiny” salary. Already in her late thirties, she feels like it has been “hard work for no reward”. Need I say more?
What do you think – should today’s 20-somethings save for a pension or is property more important? Let us know below or have your say in the Forum
Iona Bain is a 27-year old journalist who founded the Young Money Blog in 2011, aimed at discussing young people and their personal finances. She has written for the Daily Mail, Sunday Times, Telegraph, Independent, Mirror Online, and other titles, as well as appearing on BBC Radio 1, BBC Scotland and Channel 4 News. Her first book, Spare Change, is due to be published by Hardie Grant in February 2016. This article has been commissioned by retiresavvy and any opinions voiced are the author's own.