LONDON (Reuters) - Erin Graham helps well-heeled 60-somethings decide whether to spend their pensions and savings on Christmas cruises in the Caribbean or summer voyages ‘on the Med’.
But the 27-year-old travel consultant knows the chances of enjoying the same lifestyle in her twilight years are slim.
Graham is typical of future generations of British retirees who have little or no pension. Some say their budgets are so tight they have no spare cash to save while others are simply shunning a system they have come to mistrust.
“I am not taking any steps to save money for my retirement as I simply cannot afford it. What I earn is spent on rent, food, petrol, car insurance and necessities. I have no wages left to put into savings,” says Graham.
“I would like to retire at about 65 years old but by the sounds of it I’ll be working well into my seventies.”
The pensions industry and the government says younger generations are setting themselves up for a retirement spent in poverty, a contrast to those retiring now flush from final salary pension schemes and the proceeds of a housing boom.
Official figures show less than half of all UK employees were saving into a workplace pension scheme in 2011, with young people seen among the most reluctant savers.
“This is storing up massive socio-economic problems for the future,” said Malcolm McLean, a consultant at Barnett Waddingham, one of Britain’s largest independent firms of actuaries, administrators and consultants.
“I don’t want to get too apocalyptic but there is a very real problem here and I don’t think anyone should be complacent about it.”
He and others predict years of “inter-generational strife”: a cycle of parents who come to rely on their offspring to provide for them in retirement, hurting that generation’s capacity to save for their old age, and so forcing the next generation of children to support them in turn.
The state and the corporate sector are rapidly handing back responsibility to individuals for their own old-age finances as life expectancy grows, forcing young Britons to map out the end of their life long before they have lived much of it.
But as living costs and personal debts spiral, people of all ages claim hoarding cash that won’t be seen again for decades is out of the question, with 22-29 year-olds living on the median 406.60 pounds gross weekly wage in strongest opposition.
Arguably, a bigger problem is that public confidence in pensions has fallen to an all-time low.
Headlines about missold or mismanaged products, gold plated schemes for public sector workers, financial market crises as well as large bonuses for those managing pension funds, have turned people off.
A survey for the National Association of Pension Funds (NAPF) found that 54 percent of all workers did not trust pensions and would prefer other ways of saving.
Joe Tanner, a 28-year-old software trainer from southeast London has argued with his father about his lack of retirement planning every year since he started work.
“So much of what you hear in the press - it’s almost like all of your worst paranoid fears and concerns are being reported as truth,” he said.
“If it isn’t about bankers earning more money than most of us would earn in a lifetime, it’s MPs buying all sorts with taxpayer money...the idea of me putting my money into those systems doesn’t exactly fill me with confidence.”
He is saving 10 to 15 percent of his monthly salary but he ultimately intends to buy property with the money.
Those who do pay into pensions are not much more optimistic.
According to NAPF, 70 percent of those saving into a scheme for retirement were doubtful that it would give them enough money to live on in old age.
Diligent pensions investment has also backfired badly for many parents and grandparents, many of whom were missold costly schemes or lost years of growth in panicked share trading.
Steve Pattenden, a 55-year old entrepreneur from the London commuter town of Luton, has all but given up on retiring after watching more than 35 years of pension contributions turn sour.
“I envisage a meagre existence now as none of my pensions are worth anything like what they were even four years ago. I‘m seriously looking at stopping contributions and cutting my losses,” he said.
In addition many company pension schemes have become less generous, with defined benefit programmes being replaced with defined contribution schemes.
A member of a defined benefit (DB) scheme who joined at age 20 and is retiring now at age 60 would expect to receive a pension of around 21,070 pounds a year, based on the average UK salary of 31,600 pounds, Barnett Waddingham calculations show.
But a member of a defined contribution (DC) scheme making minimum contributions over the same period would have produced a pension of just 13,330 pounds a year.
Worse still, Barnett Waddingham estimates the projected DC pension for a 20-year old starting a pension now and paying into it for the next 40 years is only 6,440 pounds in today’s money.
Conscious of its growing pensions burden, the government has come up with a plan to cajole Britain’s youth into saving for the future with the launch of a work-based pension scheme called the National Employment Savings Trust (NEST) this October.
Employers will be required to make contributions on behalf of all workers without access to a qualifying pension scheme. Staff will be enrolled automatically and their contributions will be deducted directly from their wages unless they opt out.
But with no plans at this stage to make the scheme compulsory, there are doubts it will be enough to reverse a broad sense of apathy about investment or prevent today’s youngest citizens from slipping into poverty in retirement.
Jeff Molitor, Chief Investment Officer, Europe, at investment house Vanguard says fund managers and financial advisors must adopt a results-based approach to creating and marketing products, particularly for coaxing young nervous clients into investment.
“It is clear that Gen-Y (born after the mid-1970s) investors are more risk averse and don’t have the appetite to go after equities that their parents or grandparents did,” Molitor said.
Financial advisors also say better education is needed to persuade people to change their ways.
“A lot of people are making bold but wholly unfounded assumptions that the state will look after them financially in retirement,” Simon Bonnett, head of financial planning at private bank Duncan Lawrie.
“You don’t know what kind of government is going to be in power when you retire. Do you have a contract with them to provide for you when you stop working?”
Editing by Anna Willard