Jeff Salway: Pension provider trying to get young people hooked? May it start a trend

IN MY early twenties my attitude towards long-term savings was probably typical of that age group - there was no way on earth I was going to pay money into a pension.

On a pathetic salary, with a small student loan, a persistent overdraft and other (more frivolous) considerations, I wasn't inclined to divert any money I had left over each month into retirement savings. The same applied to most people I know, and still does in many cases.

So there's no point in banging on about the importance of savings when young people are suffering disproportionate unemployment levels, face soaring education costs and see their path to home ownership blocked for the foreseeable future. Want to add pension contributions to the outgoings? Good luck.

Yet, while entire forests have been felled to publish research outlining just how desperate the savings crisis has become, remarkably little has been done on kick-starting savings in younger age groups.

One reason for this is that the biggest obstacle to saving money at an early age - debt - is too intimidating. Rising housing costs and university fees mean debt, whether it's credit cards, student loans, rent arrears or mortgages, will only grow as a barrier to long-term savings.

The shrinking mortgage market also means that the age of the average first-time buyer has edged up to the late thirties, so for those trying to get onto the property ladder, long-term provisions will increasingly come second to the savings needed for deposits.

So where are the suggestions for hurdling that particular barrier? They are very thin on the ground, but this week sees an important and timely contribution from Aegon. The Edinburgh-based insurer proposes a debt-to-savings model whereby employees with debts can divert both their own and their employer's pensions contributions towards repayments. It requires a contractual agreement to ensure that once the debt is paid the employee continues to make pension contributions. If the contributions are stopped for some reason, they would have to resume at a later date.

Those switching jobs could either transfer into a similar scheme with their new employer or continue contributing to the previous employer's scheme.

The appeal for individuals is that by repaying the debt from salary and with the help of employer contributions, it is likely to be paid off sooner, reducing the cost. From the employer perspective it offers a relatively cheap way to incentivise staff and earn their loyalty.

There are potential drawbacks, of course. Some will suggest that this shouldn't be done within a formal pension environment, for example. Corporate Isas, becoming increasingly commonplace, can be a key step on the way to boosting workplace savings, particularly for younger generations with a better perception of Isas than pensions.The other sticking point is the complexity of personal debts, while there would have to be a way of working out how to balance paying off debts with the need to generate savings for the long term. There are other reservations, but none fatal.

Aegon is in the forefront of the new thinking on savings, focusing on solutions and consumer behaviour. Ideas such as this should be considered the starting point and the onus is on the rest of the industry to pick up the baton.