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Time to sacrifice holidays for pensions?
25 August 2010
Tony Vine-Lott, director general of the Tax Incentivised Savings Association, contrasts the attention given to saving for holidays to pensions. This is the time of year when everyone used to pack up and go away on holiday. Yet for most people, fond recollections of two weeks spent on a sun-baked beach in Devon or Cornwall wielding the obligatory bucket and spade are but distant childhood memories. People's holiday aspirations nowadays are far more sophisticated. Indeed many are fortunate enough to enjoy far more than a single annual break, they tend to travel much further afield, often expending their energy on far more adventurous activities - and there are many who would pay good money not to go away at the peak time of the school summer holidays. According to the Office for National Statistics in its 2009 family spending analysis, an average UK family spent £471 per week in 2008, compared to £459 in 2007. After transport, which accounted for £63 per week, the second highest amount expended fell under the heading ‘recreation and culture'. This includes: TVs, computers, newspapers, books, leisure activities and package holidays. On average £13.60 per week (the equivalent of £707.20 per annum) was spent on package holidays taken abroad, with the significantly lower sum of £1.10 per week (£57.20 per annum) being laid out on average on package holidays in the UK. It comes as little surprise, but a recent survey undertaken by protection insurance company Bright Grey reveals that over 10 million UK adults will get into debt this year in order to pay for their summer holidays. Depressingly, more than half of them won't be in a position to pay back their debt right away. So, if we assume for one moment that the average cost of a break is £1,200, even if the debt is left outstanding for just a single month, close to another £100 will be incurred in interest. We have moved a long way since the days when saving up to buy things was the norm. Then, to many, holidays were an unaffordable luxury and far more basic needs had to take priority. Even those who did have the wherewithal to go away would often do so only because they had managed their money carefully throughout the year and saved hard. But now we have easily accessible credit - and to many people, holidays have slipped into the category of ‘necessity' and are no longer deemed a luxury. What can we do, I wonder, to propel saving for retirement into the same space? Saving in advance is a good thing - saving in advance for an income in retirement is a prerequisite. A recent paper released by the Department for Work and Pensions - ‘What does the distribution of wealth tell us about future retirement resources?' - explains that, ‘if individuals expect their income to vary over their lifetimes (which is likely if they expect to work for a number of years and then retire), they might wish to save during periods when their income is relatively high and draw down on their savings when their income is relatively low in order to smooth their consumption over their lifetimes.' Well, quite! But who's going to tell them that one of the first things they may need to sacrifice for an income in retirement is a good proportion of the amount they are currently spending on holidays? Published by IFAOnline
