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Patience is still a virtue

15 August 2017

A ‘live for today’ culture and competing financial priorities are compromising efforts to save for the future.

In 1960, a series of experiments led by Walter Mischel at Stanford University looked into cognitive short-sightedness in children. Groups of four-year-olds were told that they could have one marshmallow now or, if they waited 15 minutes, two marshmallows. Two thirds of the youngsters chose the first option.1

Similar patterns of behaviour can be seen in the saving habits of adults. Many of us will recognise that our inclination to place more value on experiences that give us instant gratification – rather than on those that offer larger, delayed rewards – can undermine our saving plans.

“We live in a society where we expect instant results,” says Ian Price, divisional director at St. James’s Place. “That culture seeps into every corner of our lives and, unfortunately, it’s not realistic when we’re saving money.”

The difficulty of resisting an on-the-spot reward in return for a future benefit is not confined to the modern era, of course. Nassau William Senior, an English economist, wrote in 1836: “To abstain from the enjoyment which is in our power, or to seek distant rather than immediate results, are among the most painful exertions of the human will.”

Yet the closure of final-salary pension schemes, together with rising life expectancy and associated health and social care costs, which are more confined to the modern era, make the tendency for younger people to focus on more immediate goals a much bigger issue than it was in the past.

Falling short

A new report by Scottish Widows reveals that 70% of under-30s are failing to save enough for their later years, leaving the majority “sleepwalking into a pension shortfall”. On average, those aged 22–29 expect to need just over £23,000 per annum for a comfortable retirement, but at current savings levels they are facing a shortage of £8,000 per year.2

For younger generations, the thought of retirement can sometimes feel so abstract and unreal that the temptation is to abandon pension saving and use the money for other purposes. Indeed, the same study reveals that fewer than half of 20-somethings are committed to staying enrolled in their workplace pension after minimum personal contributions rise, beginning in April 2018.

But while retirement is likely to be the last thing on the minds of millennials, those who opt out of their company pension scheme are likely to lose entitlement to valuable contributions from their employer. The long-term impact can be devastating, because pension contributions paid in the early years have the most to gain from potential investment growth.

Scottish Widows found that half of 20-somethings said they couldn’t afford to save for the long term because of competing priorities.

“Understandably, many younger people are postponing saving into a pension until they are free of financial pressures like student debt, mortgages, or starting a family,” says Ian Price. “But unfortunately, the longer they leave it, the harder it will be for them to achieve the retirement they want.” 

Graph: achieving retirement income of £23k

To demonstrate this, someone who starts saving into a pension at 25 years of age would need to put aside £293 each month to achieve an income of £23,000. Someone who delays saving until 35 would need to put away £443, and at 45 this would be £724. Someone who left retirement saving until the age of 55 would need to put away £1,445 a month to enjoy a £23,000 annual pension.3

The figures are a stark reminder that people who commit to pension saving early in their working lives have a much better chance of achieving their desired income level in retirement.

Soft focus

In studies following up on the Stanford marshmallow experiment, researchers found that children who were able to wait longer for a bigger reward tended to have better life outcomes, as measured by educational attainment, self-reliance and so on.4

As adults, making a sacrifice now to achieve something of greater value later on is just as hard. Yet mastering self-discipline is likely to lead to equally positive outcomes.


The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up.  You may get back less than you invested.


1 Walter Mischel, Ebbe B. Ebbesen and Antonette Raskoff Zeiss, ‘Cognitive and attentional mechanisms in delay of gratification’, Journal of Personality and Social Psychology, 1972
2 The report by Scottish Widows was based on research carried out online by YouGov across a total of 5,314 nationally representative adults in April 2017. See: 
3 The estimates are derived using the Pensions Calculator on the Money Advice Service website, assuming someone earning £30,000 a year, with contributions being supplemented with a 4% employer contribution. The calculations allow for inflation, both in discounting back the final results so they’re in ‘today’s money’ and in assuming that contributions increase with earnings each year. (For further detail on the methodology, see link to Scottish Widows report above.)
4 Walter Mischel, Yuichi Shoda and Monica L. Rodriguez, ‘Delay of Gratification in Children’, Science, 1989.

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