The Lowdown Hub

The time to save for your pension is in your 50s, not in hard-up youth

We are told some things so often that they seem like common sense. To be accepted, not to be questioned. Take pensions. For years it was the received wisdom that we weren’t saving enough for them. That we should start early, put in as much as possible, and as young as possible to benefit from the magic of compound interest. That women put far less into their pensions than men.

Ever since I can remember — and that stretches back to the 1980s — I’ve read regular dire warnings about the lack of pension savings to secure retirement incomes. These stories still appear with monotonous regularity. The reality? Look at the present generation of pensioners. They are significantly better off on average than they were through most of their working lives.

Before I get a shedload of complaints, I emphasize the “on average”. It is not true of everyone. But it is true of most. Once you account for the fact that most pensioners don’t have to pay for a mortgage and don’t have children to provide for, they have a higher disposable income than they had when they were in their thirties and forties. That means they saved too much. They would have been better off doing less scrimping and saving when they were younger and instead of enjoying more family holidays, meals out or perhaps buying more furniture.

I raise the furniture point because it came up in conversation with a friend of mine. Now a senior civil servant, he was reminiscing the other day about how, when he and his wife were in their early twenties, they were sleeping on a mattress on the floor for a while. They couldn’t afford a bed. Both were fortunate enough to work in sectors where they were members of old-style defined-benefit occupational pension schemes. Something like 20 per cent of their salaries were being contributed to a pension at a time when they couldn’t afford a bed. They will have more money in retirement than they know what to do with. They would have been better off taking the money when they were young and enjoying a slightly less substantial pension.

They are the lucky ones. Generous pension schemes are now rare outside the public sector. That risks under-saving and certainly risks unrealistic expectations among the young when they look at the experience of their parents’ generation. Yet, despite dire warnings, the issue is not about what they are saving in their twenties and thirties. The standard life cycle is such that many of us aren’t too well off when we start work and while we are paying off the mortgage and raising kids. But when, perhaps by our early fifties, most of those costs are gone, we suddenly have some spare cash. That’s the time to save.