The Government’s Autumn Statement was not very cheerful. It confirmed that there are many tough years ahead for family finances and it is important that people get their house in order as far (and as soon) as possible. Public sector workers are complaining about the need to work longer, contribute more to their pensions and to have less pension income in retirement – but this appears to be the future for all of us. It seems that there is no choice and that we all have to consume less and save more. There is a danger that this is bad for the economy as a whole (The Paradox of Thrift) but we can each only take responsibility for our own household finances.

Retirement saving is a key part of that and with lower investment returns in recent years, higher inflation and rising life expectancy then it is clear that we all need to make more provision for income after our working years are done. The Autumn Statement further confirmed this such that the age at which entitlement to a state pension arises has been raised to 67 for men and women born after 5 March 1961. For those born after 5 April 1977 the state pension age is 68 but it would be surprising if the age 68 entitlement is not brought forward to those born before 6 April 1977 at some point in the next few years. Not only do the days of early retirement seem to be behind us, but also retirement looks like it will be later and later.

The government is taking action to encourage more pension saving and to increase contributions by employers. This is by something called “auto-enrolment” which will require employers to automatically treat employees aged over 22 and below state retirement age, and earning more than the personal allowance (£8,105 in 2012/13) to be a member of a pension scheme. The employer has to make contributions but the employee is also obligated to make contributions unless they opt out (hence, auto-enrolment). However a further result of the current financial crisis is that the various deadlines for auto-enrolment, which was to have this scheme fully in place by October 2017, are being delayed. The new commencement dates have not yet been set but it is going to be the end of the decade before such a scheme is fully in place.

Overall, the important thing is to try and find ways to save, and the difficulty with pension schemes is that for younger contributors, it is all looking a long way off. Saving into ISAs (Individual Savings Accounts) is probably the best starting point. Cash ISAs (available from banks and building societies) have the benefit of being capital protected and secure but at the moment returns are below inflation such that the real value of the savings is being eroded each year. Despite that, they do represent a good rainy day fund and in many ways the savings habit is more important than the returns being achieved. For longer term savings (such as towards tuition fees) then a Stocks and Shares ISA is more appropriate. Such an investment should be carefully chosen after taking appropriate independent financial advice.

Regardless of The Paradox of Thrift – we are all going to have to save more!