Forget luxurious presents; for many young Scots, getting onto the property ladder would be top of their fantasy wish-list this Christmas. 


Home ownership is still a popular desire across the country and aspiring buyers received extra encouragement from the government this week. Chancellor George Osborne’s pledge of £2.3bn for starter homes prompted renewed calls from Homes For Scotland for a new initiative from Holyrood.  Next week sees  the launch of the Help to Buy Isa, offering a tax-free savings shelter and up to £3000 cash towards a first home.


But savers are being told that they may have to choose between owning a home and enjoying a pleasant retirement at the age they expect.


National advisory firm Towry has now argued that rising house prices and longer life expectancy are creating a “retirement timebomb”, as young professionals cut pension contributions to build up home deposits.


The company surveyed 2000 respondents who earn over £30,000 and found that 30-39 year olds in that earning bracket are typically putting 37 per cent of a monthly “financial plan” into savings accounts, but only 23 per cent into a pension fund.


Towry suggested that these low pension contributions will fail to amass the funds needed to give savers their preferred income in retirement and could force them to work into their seventies.


Most respondents in the survey (74 per cent) aimed to retire at 65, and with an average desired annual income of (an improbably high) £48,949. For a 30-year-old male expected to live until they are 88 years old, this would equate today to a total pension pot of between £1.1 million and £1.3 m.


But the typical contributions quoted in the survey would only amount to £240,000 by retirement in today’s money, based on inflation worth 2.5 per cent and a net return of 4 per cent, which would have to be stretched over 23 years.


For those with more modest retirement aspirations, it is still an uphill climb.  In order to match even the current retirement living wage of £13,364 after tax, a 20-year old earning £20,000 would have to start saving 12 per cent of their salary (£200 a month). That would increase to 17 per cent (£283) for a worker on the same salary starting ten years later, unless their salary had risen to £30,000, in which case the percentage needed would stay at 12 per cent (£300).


Derek Mair, partner at Aberdeen-based chartered accountancy firm Hall Morrice, who did the calculations, said: “The figures are daunting and unattractive but unfortunately, generation Y has an uncomfortable retirement ahead unless they act quickly.”

He said constant political tinkering with the pensions regime, particularly the consistent drop in the lifetime allowance threshold, could leave today’s young people highly vulnerable in retirement. He said: “Despite the notable increases following the launch of auto-enrolment, it is estimated that for a comfortable retirement, generation Y should already be investing at least 15 per cent of their salary into a pension pot.”

 Andy James, head of retirement planning at Towry, said their figures showed that 30-39 year olds were likely to be very disappointed with the pot they had to draw on in retirement. “Either they need to drastically reassess their expectations of retirement income and face the prospect of working well into their 70s, or start saving a lot more into their pension fund right now.”

There is a growing consensus that saving through auto-enrolment, the government scheme which nudges workers into contributing to a workplace pension, will not be enough to provide a decent income at the traditional retirement age.

Experts also doubt whether saving for a home is always at odds with saving for a pension. This is because the cost of a first home varies tremendously across the country.

For its research, Towry quoted statistics from Halifax suggesting that the average first home cost £178,370 and the average first time buyer is 30. However, the LSL Property Services index shows that first homes in Scotland typically cost £130, 160, while most first-time buyers are normally aged between 25 and 29 years old, according to the Council of Mortgage Lenders.

 A five per cent deposit of £6508 is easily achievable, according to property commentator Kate Faulkner. “The LSL figures shows that most first time buyers can get on the ladder for less than £100,000. It might not be the perfect area or property, but the trick with getting up the housing ladder is to get on it first, then use the additional equity to help you trade up to the next house or area you want to live.

“If you want to buy in the next two years, it’s worth looking to save around £200 a month into a Help to Buy ISA if you can. And don’t forget, if two of you buy, which is how I got on the property ladder back in the 1990s, it’s just over £80 - £100 a month.”

The Help to Buy Isa, launched next Tuesday, is being offered by Lloyds Banking Group, RBS, Santander, Nationwide, Virgin Money, Newcastle BS and Barclays. Savers need to save at least £1,600 to get the minimum 25 per cent bonus of £400. The maximum bonus is £3,000, which would mean saving £12,000 over five years – £1000 below the current Scottish first-time deposit on a 90per cent mortgage.