As the Scottish Widows Retirement Report 2017 reveals that 70 per cent of young people are failing to save adequately for retirement, Mat Zimmerman – market development manager for Scottish Widows – takes a look at millennials, their priorities and challenges, and how the workplace can be used to support this group…
Under-saving has a clear impact on financial wellness. Younger people are less optimistic than average about their finances in retirement and nearly a third of 18–29 year olds say thinking about their finances in retirement makes them feel stressed.
A range of research shows that financial wellness in a workforce is linked to business performance, so this is an important issue for employers.
Higher debt and competing financial priorities
Mortgages aside, adults under 30 have higher levels of personal debt, averaging £20,422 compared to a national average of £11,756.
This is driven partly by student debt, but one in five also have unpaid credit card bills and 15 per cent have other loans to pay off. For these reasons ‘other financial commitments’ is the main reason given for opting out of the company pension.
A quarter though, said they opted out because they preferred to spend the money now.
Focus groups conducted for Scottish Widows reflect that many of these customers are in a mindset of ‘living for today’ – with financial priorities being things like holidays: “I’m saving for a few months to travel around Europe next summer, that’s all I’m focusing on,” for example.
When people do start looking further into the future, they often aren’t looking as far as their 60s and 70s. A step ahead of those ‘living for today’ are those ‘starting to build’.
They can afford to save, and often do, but the financial milestones that are front of mind are more likely to be saving for a house deposit, or a wedding for example.
These may take precedence over saving for later life, but people often say they intend to save more in their pension, once they’ve reached their nearer-term goal.
A lack of understanding leads to under-appreciation of the benefits
Perceived complexity combined with low levels of knowledge and engagement is a factor in under-saving across all age groups, but younger people are generally less confident than most in assessing whether they’re preparing adequately for retirement.
Further, when asked why they’re not saving more in their workplace pension, they were twice as likely to say they don’t understand enough about how it works.
As a result, they’re less likely to appreciate the full value of a workplace pension. Employer contributions are a key benefit, but only 37 per cent of 18–29 year olds say the employer contribution is the main reason to save in a workplace pension, compared to a national average of 53 per cent.
Unable to get the benefits of their savings straight away, some feel their money is going off into the ‘abyss’, rather than seeing it as underpinning a comfortable financial future.
A role for employers and pension providers
Employees associate their pension with their employer, and in last year’s Financial Advice Market Review (FAMR), the Financial Conduct Authority (FCA) recognised that the workplace is an ideal channel for information and education.
Following this, a working group is developing ways to help employers support their employees with financial wellbeing.
But there is plenty employers can do now and under 30s are nearly twice as likely as the rest of the UK to say they’d save more in their pension if they had more information from their employer.
Different organisations will have varying amounts of time and resource to implement this, but it’s worth looking to your pension provider or adviser to see what they can help with.
Some can share video content, emails, literature etc. Some will even be able to run face-to-face presentations in the workplace. At the very least, employers will likely be able to point their workers to a website with relevant tools and information.
Scottish Widows’ survey asked people what types of services employers should provide alongside a pension scheme. Priorities for younger people are:
- Lists of where to get more info about retirement planning
- Information on how to budget for retirement
- Web-based tools or calculators
- And perhaps surprisingly, information about the State Pension
Given this content is likely be available through a pension provider and other sources, it’s well within the gift of employers of all sizes to point employees in the right direction.