This summer’s class of graduates will need to work for a quarter of a century before their pension wealth outstrips their student loan debt, according to data from robo-adviser Evestor.
Graduates will spend 24 years on average repaying their student loan, while ploughing money into an auto-enrolment pension.
This is assuming they enter the workforce with an annual wage of £25,000 and the economic climate delivers above-average wage growth, and that graduates will contend with an average student debt of more than £50,000.
The result will be most graduates not becoming student debt free until they reach their mid 40s.
University-leavers face making automatic pension contributions for the majority of their careers – but for decades these will compete with considerable student loan repayments.
The average graduate starting work this summer will only see the value of their pension crossover with the value of their student loan at the age of 45, with both sums in the region of £60,000.
The 2017 crop of graduates will start their working life with a requirement to find £29 a month from their wage packet to make the required student loan repayments, rising to £64 a month at age 25 and £109 after 30.
Monthly repayments will continue to rise until the debt is cleared, which for those still paying off after 30 or so years could be the equivalent of £460 a month.
Repayments, combined with auto-enrolment pension payments, which start at £13 a month, but will rise to £108 per month by age 30, may be of concern to many students.
Anthony Morrow, CEO of Evestor.co.uk, said: “For millions born this century, the burden of a student loan is replacing the aspiration of a mortgage – while lingering fears from the financial crisis risk turning people away from investing in their future. Generation Z risks becoming short-hand for Generation Zero-Wealth.
“But this is not inevitable. Young people are generally right to invest in their education, not least because a degree can boost earnings potential. A better salary is still a better situation. And regardless of income, almost anyone can improve their financial prospects by taking the right steps and having a plan.”
Michael Fairweather, director of Edinburgh-based Real Life Financial Planning, said: “A graduate with £50,000 or so of student loan debt to repay may be tempted to think twice about sticking with auto-enrolment, but it’s probably worth the effort. If they opt out they are effectively electing to take a pay cut as they are missing out on the employer contribution.
“It’s a different matter if they have credit card debts running at 20 per cent interest. In this case, they should clear this burdensome debt before paying into a pension.”
