Those of us in the position to do so should take personal responsibility to provide for ourselves. I believe that it is socially irresponsible for any individual who can afford to save something towards their future, however little, to not be doing so now.
At some point, we are likely to see the end of the universally-provided state pension, and it will instead become a safety net for those most in need. The state pension system already accounts for 7.1 per cent of GDP but this figure is projected to rise to almost 10 per cent by 2062-63 – an extra £140bn to find. Sadly, I think it is naïve to expect politicians, on a five-year electoral cycle, to resolve what is a 50-year issue.
Of course, one person’s view of “life’s necessities” is different to another’s. However, it is too easy to hide behind the line “I cannot afford to” and this must be challenged. If you can afford two holidays a year, or a coffee every day, you also have the opportunity to put some money aside to secure your financial independence and actually enjoy life in retirement.
If a 20 year old put the cost of that £3 coffee towards their pension pot each morning, they would have built a £14,000 annual pension to draw on 50 years later at their retirement age. Nor is it too late for those in their 50s. They can add to their “coffee savings” by taking just one holiday every year. Saving an additional £500 – plus the amount spent on coffee – each year, would add a £13,500 lump sum and £2,000 a year to the pension pot.
How then do we deal with those who can afford to provide for their future but choose not to, spending money now and having to lean on others when they retire?
As corporate citizens, employers have a crucial role to play here. Employers are already in a good position to educate and incentivise employees to save for their retirement. But going further, they could also award bonuses to employees who agree to put a proportion into long-term savings.
Or if the government really wants to encourage saving, perhaps it should impose penal tax rates on those who can unquestionably afford to save but don’t, and offer tax breaks for those who do. Increasing tax breaks is a politically sensitive solution. But I believe the current crisis means we have to think more boldly.
Employers and government must play their part. But we must also ask ourselves, next time we buy a cup of coffee or order a take-away, whether we as individuals have done enough to preserve our long-term financial independence.
Linda Ellett is a pensions partner at KPMG.