Statistics show that the average age of pension savers is increasing and this is put down to the impact of the recession on disposable income, particularly on the younger age group who would benefit most from starting the pensions saving habit early. But is the recession really to blame? 

In my mind there are two reasons for the ageing trend in the population saving for retirement; firstly, people are living longer and understandably governments are reacting by increasing the age when State benefits are paid and removing the right of employers to terminate employment on age grounds.  This is keeping the older age group in their jobs for longer, which is reducing the vacancies to be filled by younger, inexperienced but often better qualified people.

Secondly, the UK government has been hell bent on pushing as many school leavers as possible towards higher education, rebadging institutions as universities in the process as some kind of marketing ploy.  This has been coupled with the wholesale grant of student loans to cover the steady increase in tuition fees, which are about to be raised again, this time by 200%-300%!  So, on average, young people are emerging from their academic studies with £20,000 owed to the Student Loan Company plus around a third of that amount owed on a credit card issued almost irresponsibly by one (or more!) of the major banks.

How can young people be expected to save when their debt exposure seems to be spiraling out of control?  It’s quite easy really but it requires common sense and political will…..and quickly!

The student loan should become a two-tier affair, with the lower tier (say £10,000 max) a ‘government assisted’ loan.  When the student gets a job this is repaid from earnings, as currently, but the repayment by the employee is matched £ for £ by the government. 

Anything over £10,000 (it might need to be higher initially) would not receive a government match, which would act against a young person’s natural ability to run up debt whilst in university.  This pattern could be continued after the student loan is repaid, with the employer taking over the government match, initially using an ISA as the savings vehicle given its flexibility but later shifting this to a pension. 

That way NEST, the new government pension plan being launched in 2012/13 with its auto-enrolment feature becomes unnecessary as, who would turn down government/company help to first get rid of debt and then to help with savings?!

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