Changes to pensions won't help young people save


Clear glass jar for tips with money isolated on white. Ukrainian coins

Increased pension freedoms are not only meant to give a boost to older voters who are more likely have suffered under measly interest rates and poor annuities, they are also expected to encourage saving.

The idea is that by providing more freedom around pensions in this year's Budget – by giving retirees access to the entire pot - and by bumping up the ISA limit to £15,000, not only will the government win over the grey vote but it will also encourage younger people to save more, especially into pensions.

In theory if younger people know their pension money is accessible on retirement and they don't have to lock into an annuity then they will put more in to their pension. Except this theory is desperately flawed.

If we're assuming a young person is someone in their twenties and thirties, I don't think I know of one young person who makes the decisions to save, or not to save, into a pension on the rules around accessing the money.

After all these people aren't going to be retiring for another 40 years, does the government really think they care about pensions access rules that will probably have changed innumerable times in the decades until their own retirement.

The government is either assuming that young people care that much about pensions or it is completely deluded about what drives those in early years of their working life to save.

In truth the impetus behind whether younger people save or not is how much money they have left at the end of their pay packets. With sky high rents, rising cost of living, and young couples struggling to get on to the housing ladder, there is often too much month left at the end of the money and that's before you even think about retirement.

Of course auto-enrolment will go someway to address this but when contribution rates start to increase then we will see whether it continues to work as well.

If you want young people to save, don't try and entice them with changes that only older people can benefit from. In fact if you want young people to save it may come down to compulsory saving, although this brings with it its own problems such as the impact on those who genuinely can't afford to save even £10 a month.

One thing is certain, there is no such thing as a policy that will encourage all generation to save.

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