Longer lives & a smaller state pot
In the UK, life expectancy has steadily been increasing. Men born between 1980-82 can expect to live around 71 years, whilst those born between 2009-11 are projected to live about 78 years. For women, the ONS figures are 76 and 82 years, respectively.
Given that the UK government provides a state pension to most UK pensioners, each of those extra years potentially represents billions of pounds in extra government spending. This poses a huge challenge for politicians to solve, especially when you consider that budgets in many areas such as education, defence and welfare are already under huge pressure.
The reality for those in their twenties is this: the government is likely to help a bit with your living costs in retirement. However, the government’s help in itself is highly unlikely to support your entire lifestyle over the course of 10, 20 or possibly 30 years.
So you need to consider additional plans. Consider for a moment that, according to research by Which?, most people will need an annual income of £26,000-£39,000 per year (in today’s money) to cover their costs in retirement.
The full new state pension in 2019-20, however, is about £8,767.20 per year.
That’s quite a shortfall! Yet there is a lot you can do about it - particularly by contributing to a workplace and/or personal pension, which can be invested for long term growth. The good news is, moreover, that by acting sooner in your 20s rather than later, you can make your savings stretch much further.
Why? Due to the power of compound interest...