Gen Z – what are they like? If you were to search that question on Google, you won’t have to do much scrolling before you see phrases like “financially minded” or “money savvy”. A study by NatWest earlier this year found that Gen Zers – those born between 1997 and 2012 – are more likely to be responsible and cautious with money than their baby boomer counterparts.
But as a proud member of this demographic cohort, I am afraid I very much go against the grain.
Even though I’m a money reporter by trade – sharing thrifty tips to save you cash is my bread and butter – I am also a 24-year-old girl who enjoys nothing more than spending an obscene amount of her salary in places like & Other Stories and M&S Food.
This drives my friends mad. “How can you preach about how important it is to make cutbacks where you can, when you’re the worst of them all?” they will ask me. It’s a valid point – I should start following my own tips.
But despite my spending habits, there’s one thing I won’t compromise on – the importance of paying into a pension in your twenties.
It’s become a taboo subject in my house. It’s something that sends a shiver down the spine of my housemates when a guest brings it up over dinner.
“Don’t set her off again,” housemate A said during our last dinner party when one of my friends, let’s call him Dan, told me that he opted out of his workplace pension scheme.
Just for context, his shiny new Range Rover was parked outside, so in other words, he can afford to contribute 5 per cent – the usual legal minimum contribution for eligible workers – of his monthly income towards his pension.
Thanks to my dad’s advice, I’ve been putting 7 per cent of my income away for my retirement every month for the last three years, with my employer topping up 3 per cent, so that 10 per cent of my pay goes into retirement savings.
This isn’t me bragging, but it’s more than the minimum, and a great deal more than Dan is putting away – which is zero.
I’m very fortunate to be in a position to do this, but I just can’t understand why someone who is relatively well-off, with a lot of disposable income, would rather spend hundreds of pounds every month on a flashy car or a blingy watch than set themselves up for their golden years, even if it does feel too far away to even think about right now.
Opting out of a pension scheme means leaving a workplace pension scheme that your employer has enrolled you in, but doing so means you not only forfeit your own cash – plus some tax relief – but the cash your employer would have paid too.
The main benefit of opting out is of course, having some extra cash in hand every month.
I do get that right now, it’s rough out there.
Bills are more expensive, inflation is still cutting into budgets, rent costs have risen faster than wages, and not that I want to sympathise with Dan, but car insurance – particularly for Range Rovers – is through the roof.
But the long and short of it is, the sooner you start paying into a pension, the better. According to the Pensions and Lifetime Savings Association (PLSA), the typical income needed for a comfortable retirement is £43,100 per year as a single person and £59,000 as a couple.
For both this includes a three-year-old small car, an annual four star fortnight away in the Mediterranean and up to £1,500 for clothing and footwear a year. If you have loftier ambitions – perhaps the odd trip to the spa, theatre trips or a spot of globetrotting – your pension savings will need to give you a much higher income.
Although the exact ins and outs of what this equate to in payments now depend on your investment performance, if you’re 25 now, single, and you start paying £630 a month into your pension, you’ll likely be able to live comfortably, according to calculations by financial planning firm Quilter based on the PLSA figures.
What I’m trying to say is, even if you’re paying over and above every month into your pension, you’re probably still not contributing enough. But the more the better and the earlier you start the better.
I know this isn’t an option for everyone, however. It’s sobering to think that 1.4 million younger workers in the UK feel they have no choice but to pause pension contributions just so they can afford other essential bills, according to data science firm Outra. In the past year alone, the number of financially vulnerable youngsters who are failing to set aside money for their retirement has increased by more than 5 per cent, or 72,000, its research showed.
Sadly, I fear this number will increase over the coming months with the news that energy bills are likely to rise by 9 per cent from October.
It looks like the cost of living crisis is sticking around for a bit longer but middle-class youngsters with high earning jobs need to stop using this as an excuse for opting out of pension schemes when they can afford to contribute.
Ultimately, I understand that it is down to the individual.
Going back to the aforementioned dinner party – my other housemate, who we’ll call housemate B, sided with Dan to my surprise, saying: “Why would you want to be the richest woman in the graveyard.”
“I don’t,” I replied. “But I also don’t want to be worrying about how I’m going to survive off the state pension alone when I’m supposed to be relaxing after decades of hard work.”
Dan is a smart guy, which is why I can’t understand his ignorance when it comes to the importance of paying into a pension at a young age. Maybe he just finds it boring. Or maybe he really would rather spend his money on a week partying with Wayne Lineker in Ibiza, and do you know what, maybe that’s just fine.
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