Youth unemployment raises pension saving concerns

Unemployed young people could miss out on thousands of pounds in pension savings due to being unable to find work as a result of the Covid-19 pandemic, Interactive Investor has warned.

Commenting on Office for National Statistics (ONS) data, which revealed that the number of 16 to 24-year olds in employment fell by 174,000 between July and September to a record low of 3.52 million, Interactive Investor head of pensions and savings, Becky O’Connor, warned that young people could face “deferred pain” in retirement.

Analysis by the firm estimated that a 21-year old who is out of work for four years could miss out on £27,000 in pension savings, while a two-year saving gap would result in pension losses of nearly £14,000.

According to Interactive Investor calculations, someone starting work and contributing to a workplace pension at the age of 21 would have around £183,897 in retirement.

This falls to £169,992 if pension saving begins at 23 and £156,833 if starting at 25.

“Young people out of work don’t just face financial difficulty now, they could face deferred pain in the future in retirement, as a result of potentially years of missed pension contributions,” said O’Connor.

“While the impact of coronavirus on retirement plans is unlikely to be top of the priority list for this group right now, it’s something for them to be aware of and plan to make up for when they do find work.

“Despite being young, this group does have ideas of what they want from life when they are older. It would be a sad long-term consequence of the pandemic if their hopes for retirement as well as their short-term goals, are dashed.”

The platform urged those who are earning but not in permanent employment to consider starting a personal pension and contributing whatever they can afford until they are able to access a workplace pension scheme.

O’Connor added: “When they find a job, these young workers will have some making up to do on pension contributions.

“It would be wise, if it’s possible to do so, to pay in more than the minimum auto-enrolment contribution of 8 per cent to help build these reserves back up. That’s because the early years of work really are the golden years when it comes to building up your retirement pot.

“For those young people who are earning, now is the time to take advantage of any savings made through living at home with parents, not going out and travelling less and to put any surplus into your pension.”

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