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Pensions crisis looming for young people as many are gambling on property to pay for their retirement
Last updated at 09:37am on 17.09.07
Many of those aged between 25 and 34 have been forced to stretch themselves to the limit to buy a home, says a new survey
A bleak financial future awaits today's young adults because the proportion paying into pension schemes has halved in ten years and their debts have nearly doubled, a report reveals today.
The study found that many of those aged between 25 and 34 have been forced to stretch themselves to the limit to buy a home and have pinned their hopes on rising property prices to provide for their retirement.
But those hopes are likely to be in vain if the example of today's retired is anything to go by.
The research found that while property owners aged 55 and over have seen the value of their homes rocket, their cash income has not risen in a decade.
With sky-high mortgages to pay off and minimal savings, young people face the same predicament of having all their wealth tied up in their homes and little cash for day-to-day living.
The study, carried out by the International Longevity Centre, showed that the proportion of 25-to- 34-year-olds saving into a pension halved from 26 per cent in 1995 to 13 per cent in 2005.
The average value of property owned by the same age group rose from £65,000 to £167,000 - but their average mortgage debt went up from £50,000 to £94,000.
On top of the mortgage, their average household debt shot up from £2,400 to £4,600 in the same period.
James Lloyd, senior researcher for the think-tank, warned: "Despite the property wealth of older households more than doubling in value during the decade after 1995, these rising property assets are not actually resulting in an improved standard of living for older people in retirement.
"Now a new generation are seeing their retirement saving skewed towards property assets, with bigger mortgages and falling contributions to private personal pensions.
"But the young risk being let down badly if they think that buying a property is the best way to save for retirement.
"They may find themselves in the same position as today's older cohorts, with large volumes of illiquid wealth that are failing to contribute to any extra income in retirement."
The research, commissioned by financial services groups Prudential and Partnership Assurance, found that the proportion of those aged between 55 and 64 saving for a pension remained steady at 20 per cent, while it had fallen among all other age groups between 1995 and 2005.
Just two per cent of 16-to-24-year-olds now pay into a personal pension.
Young adults may boast greater total wealth than ever before, but in many cases this is because their parents have helped them put down large deposits on a first home.
And, having stretched themselves to buy a property, many then find they have little or nothing left over to plough into savings schemes, ISAs, or other investments.
Mr Lloyd said that to ward off misery, young people needed to think about spreading their investments.
"The average 30-year-old now has more total wealth," he said.
"But at the same time they have got this much bigger mortgage to pay.
"Property should be part of an investment portfolio, but not the only part."
Ian Owen, chairman of Partnership Assurance, said: "The move towards property as a vehicle for retirement underscores the need for high quality financial advice and education, so that people are aware of the options open to them and the benefits and limitations of various saving methods."
The research is the latest round of bad news for young homebuyers.
Last week, homeowners were warned that they face even higher mortgage bills because of the global credit crunch, with the Halifax and Abbey among those to have already pushed up some rates.
Banks and building societies are also tightening their lending rules, making it harder for first-time buyers to get a loan.
Reader views (12)
Here's a sample of the latest views published.
This is the biggest con in the history of capitalism, and everone's involved, a large number of whom have no idea of the gravity of the situation. House price inflation, or 'National Pyramid Scheme' as I like to call it, encourages those on the bottom to furnish the pockets of those at the top with lots of cash. As with all pyramid schemes however, when there are no more suckers to come along and get involved, a collapse ensues. This is what we are seeing happen.
House prices being high benefits the rich, those with land and property. These people are linked to banking, money lending, housing development, and the industries which lend capital to those who haven't any so that they can further swell the coffers of the rich. Effectively, those who stand to gain are fuelling the boom out of which they are benefitting by irresponsible lending. Unfortunately, the majority of the population have clearly more money than sense and have fallen for this enormous scam.
In addition, our whole economy has been based on spending debt that the housing bubble has afforded through MEW. We do not make anything in the UK anymore, so when this 'false economy' dries up, we are in for a rude awakening. Expect 25% unemployment, increase in crime, increase in radical extremist behaviour. When they realise they've been taken down the cleaners, again, the have nots will be coming after the haves. And owners of Range Rover 'sports' will begin wishing they'd ticked the bullet proof glass option.
- Andrew Goodman, London
Consequences such as this have been discussed in depth for years on website forums - yet repeatedly dismissed as doommongering by estate agents, lenders, etc. These so called experts are a joke.
- Pt, Tynemouth
It is a disgrace that after what New Labour's Chancellor has done to the UK pensions he was 'elected' to become PM.
- Jacqueline, Hampstead, London
As has been said before rising house prices are just a tax on the young for the benefit of the old so as to pay their care home costs!
- Andrew, Teddington
Aodan - I've just come back from Berlin and the properties offered by so called investment companies are in the former East Germany. Trust me, you don't want to live there let alone buy a property to let out. You would do better putting your deposit/cash in the bank or a properly run investment fund.
- Dan, Manchester
You could contribute hundreds of pounds a month, if you have the money to do so and maintain a reasonable standard of living for today, to a pension fund but no one can give a cast iron guarantee that that money will be there for you when you come to retire. Is it any wonder that people are taking matters into their own hands and putting into property?
- Penny, Bath, Somerset, UK
We have the same problem in Ireland. The older generation have large amounts of equity on their properties but the younger generation have to pay for this equity when they purchase a property and they end up with massive debts. The future for the younger generation is not bright.
The younger generation need to start planning now. 90% of the young people in Ireland cannot afford to get on the property ladder in Ireland and the same applies in the UK. What to do. My advice is invest in a property, however not in your home country. By far the best place in Europe to purchase a property is Germany.
- Aodan Conneely, Galway, Ireland
"Most defined contribution schemes allow no scope for retirement planning (you don't know what you're going to have to live on until you are right on top of your retirement)"
I'd suggest that's a gross exaggeration. While defined contribution schemes (i.e. money purchase company pension schemes) don't provide a defined level of income in retirement, it's still possible to plan for retirement: it's simply that there's a range of outcomes (i.e. range of income in retirement), rather than a single outcome (i.e. defined level of income in retirement). The key is to use sensible assumptions when projecting investment growth rates and annuity rates.
- Richard Hancock, Bracknell, UK
Nu Labor should have stayed out of the pensions. Gordon and Tony again did not know what they were doing.
- Francine, Islington, London
Gordon Brown and Tony Blair have ruined what was of the UK pensions.
- Georgie, London
The problem is that the pensions offerings from both commercial providors and occupational schemes in the private sector have never been riskier nor represented poorer value for money. Unless you have access to - and are able to accrue 30 + years in - a public sector final salary occupational scheme, you're as well putting your money under your mattress.
Most defined contribution schemes allow no scope for retirement planning (you don't know what you're going to have to live on until you are right on top of your retirement) and, in any event, tend to provide just enough to lift the recipient out of eligibility to means-tested state benefits.
It's no wonder young people are looking for alternative means of saving for retirement.
- Rory, Yorkshire
What amazes me is that there is actually surprise at this news. Gordon Brown has trashed the unregulated and often mis-sold pensions of their parents.
Young kids are NOT stupid!
- Steve, Brentford
