Saving … for ourselves

Scottish Widows, one of the largest UK Life offices, recently estimated (December 2012) that today’s children will need a £2.4m pension pot to achieve a comfortably and debt free retirement. It is expected that increased longevity will heap extra pension costs onto future generations.

The dramatic speed at which life expectancy is increasing requires radical changes to our thought process, especially on our perceptions of life for our children. Most workers today expect their pension to fund a retirement of up to 20 years; however, increased life expectancy means the current working forces will have to save enough for a retirement most probably beyond 30 years.

According to the UK Office of National Statistics (ONS), last year over 800,000 babies were born (the figure posted was the highest number of newborns for over 40 years since 1972), obviously without knowing that they will need to save £2.4m into their pension to retire comfortably.They may have to face rising student and mortgage debt and, a major growing concern, care costs for their parents and, ultimately, themselves.

The first challenge to building such a sizeable pension pot is the repayment of student loans and mortgage debt.

Scottish Widows claimed those who attend university are likely to face debts of £73,000. The repayment could, on average, last until they are 52 years of age.Under the new charging system, universities can raise their annual tuition fees to £9,000. As it stands, it would appear that the full cost of a three-year degree course averages at just under £26,000.This is now at an all time high and is likely to continue to rise year on year progressively.

They also stated that mortgage terms are likely to be extended, as people work longer and borrowers average 61 years of age on completion of repayment. This is four years later than their parents and seven years later than their grandparents.

Their opinion on the subject of social care costs is that they are likely to be a major financial concern for this new generation. However, care costs are an existing financial concern to the baby boomers and all generations following. This added pressure will be crucial to all generations’ pension pots.

Scottish Widows concluded that a combination of all of these factors will make it difficult to save the huge pot needed for retirement, despite the fact that this generation can expect to continue working well into their 70s.

To combat this, saving for retirement must begin when this new generation reach their early to mid-twenties. It is paramount that parents and grandparents encourage their children to start understanding finances and the importance of saving from a young age.

As parents or grandparents we teach children how to brush their teeth to ensure good dental hygiene. We teach them rules of life to keep them safe and alive. We pursue education and culture to enrich their lives. We should also teach them how to structure their finances. Each individual is different. We have an opportunity to construct their financial well-being, as well as our own.

Raoul Ruiz Martinez is a resident financial consultant for Finesco Financial Services Ltd., Glasgow. Finesco Financial Services Ltd., is authorised and regulated by the Financial Conduct Authority (FCA). 289 561 333