Primary navigation:

QFINANCE Quick Links
QFINANCE Topics
QFINANCE Reference
Add the QFINANCE search widget to your website

Home > Blogs > Pensionomics > A Poorer Future

A Poorer Future

A Poorer Future Pensionomics

Last week, youth unemployment ticked upwards again for the third month in a row and is now running at 20.2% according to the latest numbers from the ONS. That accentuates a worrying reversal in the downward trend evident in recent readings since the start of 2011.

Meanwhile this week, we learnt that the proportion of 18 to 24-year-olds in England not in employment, education or training – so-called Neets – has risen to 18.4%, which is the highest since comparative numbers were first published in 2006.

The fact that we seem to have reached a new structural plateau for now – well above the brutal recession of the early 1990s – is doubly troubling. In all likelihood, this high youth unemployment we see today is a harbinger of high levels of pensioner poverty tomorrow. That does not bode well for government and the state finances. The fact that this recent crisis could have longer-term adverse consequences for younger cohorts is supported by the experiences from the early 1990s recession. Despite considerable government efforts, there is evidence that some regional labour markets in the UK were still suffering from the repercussions even 15 years later.

Depending on the length and depth of the current downturn, it is feasible that something similar could be experienced again. Beyond the loss of jobs today, these people will enter the labour force later, are likely to have lower wages and will have a lower trajectory of wage growth over their working lives. They will be blighted by their broken employment records as generally, businesses can be expected to favour those just entering the labour market over those who have experienced unemployment once they start hiring again.

All this matters for the future provision of pensions. Generally only those in employment accumulate valuable pension entitlements, and these entitlements are often linked to wages and career trajectory.

This triple whammy will mean significantly fewer savings for their eventual retirement, particularly castigating in an environment where defined contribution is all the rage. Here, these younger cohorts will bear all the investment and longevity risk also. The early indications are not promising for either. Without adequate private pension provision, there will be increasing calls on the state sector to deliver over the longer term.

There is also a danger that these factors will lead to a growing sense of disenfranchisement and disillusion with the pensions system. It is likely that a large number of people will be tempted to reduce their pension contributions over the next few years to cushion the shorter-term adverse consequences of the downturn and focus on more immediate needs such as housing and children. Doing so will have a significant negative effect on the adequacy of their retirement incomes, putting further pressure on a future government to fill any potential gap.

None of this bodes well for intergenerational tensions down the line, particularly as the baby boomers enjoy what will come to be perceived by many as a superior retirement.

This guest blog was first published on Pensionomics.com

Tags: fund , Incomes Data Services , ons , pension funds , Pensions , poverty , retirement , unemployment
  • Bookmark and Share
  • Mail to a friend

Comments

or register to post your comments.

Back to QFINANCE Blogs

Share this page

  • Facebook
  • Twitter
  • LinkedIn
  • RSS
  • Bookmark and Share

Blog Contributors