BLOG: Unrealistic expectations

With the recent proposal to allow young people to use part of their pension pots to fund a deposit for their first home, the same old question seems to pop into my mind whenever industry figures talk about young people and pensions: how much money do they think young people are able to save?

A recent modelling structure designed to provide support to the pensions for property proposal, which was initially suggested by Housing Minister James Brokenshire, claimed that a 25-year-old should be able to use up to half of their pension on a deposit for a house.

However, the modelling structure, which was used as an example of what a future system could look like, indicated that the 25-year-old and a partner would need £22,800 in pension savings each, on a wage of £25,000 for the past five years, to be able to afford a deposit on a £228,000 home.

Not only this, but the model also required a combined contribution rate of 15 per cent and an annual ‘government top-up’, which doesn’t actually exist, both of which seem farfetched, even for the most optimistic individual.

The calculations also rely on a reduction in the auto-enrolment age, the contribution rate nearly doubling over a decade and house prices remaining unchanged, which is likely to be out of the question in the current housing market.

However, the primary issue is not the deluded figures used to estimate how much young people can save, but that models like this are being used to fit a specific argument or agenda.

The model proposed appears unachievable, but it is still being used as ‘evidence’ as to why a policy that could endanger the future financial lives of young people in the UK should be adopted.

Unfortunately, this is not uncommon. Firms often use statistics or frameworks that are tailored to fit the message they want to push.

This could be a dangerous precedent. Headlines and soundbites can form the opinion of those who do not delve deep enough to realise the stringent parameters required to fit the story agenda.

We need the industry to wake up and realise how hard it is for young people to be able to save enough for a comfortable retirement. Gone are the gold-plated DB schemes that older generations have benefitted from and living costs have soared, leaving very little in bank accounts at the end of each month.

Young people are disillusioned and unengaged in pensions, and it will only get worse if we let them chip away at their retirement savings for housing or set them unrealistic models that give them false hope into what is achievable.

Pension savings are for retirement, not for living during their working life, and issuing unrealistic models that support dangerous ideas will only give another reason for young people to disregard their pensions and continue their inertia.

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