Mat Zimmerman, Market Development Manager
The retirement prospects for young savers are mixed. Most of them won’t have the security of final salary pensions, as their parents may have had, but many will at least benefit from being auto-enrolled at an early stage in their careers. Getting into the savings habit at an early age is important, not to mention the decades of compound growth young savers could see on their investments.
Employers and industry have a role to play in engaging young people and helping set them on the right path towards comfortable financial futures.
Why we can’t sit back and rely on automatic enrolment
You can’t deny automatic enrolment has been a fantastic step forward for saving in the UK. We are nearing the landmark of 10 million people enrolled, many saving for the first time. But the 8% contributions we’ll see from 2019 won’t be enough for the majority of savers to achieve the income levels they are aiming for. There’s a pressing case for the Government to increase the minimums further, but that would be part of a longer-term strategy, requiring time for planning and implementation.
In the meantime, there is a generation of young people passing through auto-enrolment and, perhaps with a false sense of security, under saving at 8% or less. Our 2018 Retirement Report reflects that just 2 in 5 workers aged 22-29 are saving adequately for retirement.
There’s also the risk of opt-outs. While these are fewer in number than originally anticipated, and there are a range of reasons why people may opt-out, the impacts on individuals’ future finances could be very damaging.
Engaging your younger workers – four actions you can take
- Make the time for retirement planning
As with all segments of your workforce, engaging young people with pensions requires taking time out from other things to give retirement planning a focus. Your employees will likely need a prompt, so you should start to think about the best opportunities to do this and make it a priority.
Tax-year-end, benefits days, pay-rise or bonus dates could all be good opportunities, but you can create your own ‘occasion’ to put retirement planning in the spotlight.
- See what help you can get
See what your pension provider and adviser can offer. They may be able to offer staff presentations and other resources, and these may not come at a cost. They may be able to recommend a tailored approach for your organisation – considering your workforce demographics, locations, industry etc. If you’ve a large enough workforce, you may benefit from taking a diverse range of approaches – workers just starting out in their careers will have different pension priorities than those with one eye on retirement.
Scottish Widows supports its workplace customers with a range of approaches to education and engagement. One example is the AgeMe profiler. Employees have their photo taken, answer a couple of questions and are given a predicted age at which they will be able to afford to retire. They’re also given a picture of what they’ll look like at that age!
This works best when we have our retirement experts on site, who can help point employees in the right direction if they want to improve their retirement prospects.
- Bust some myths
Pensions can suffer from poor perception. We see evidence of people mistrusting workplace pensions, because they’ve seen stories in the media about final salary schemes running into funding problems. Most auto-enrolees aren’t in these types of scheme anyway – and there’s a good deal of protection for workers in all types of scheme. Our article on 'Is my pension protected' may help you reassure workers that their pensions are protected.
- Put pensions in their pockets
Your workplace scheme will likely offer members some online access. They’ve probably been invited to login at some point – maybe some have done so, maybe some haven’t. Give them a nudge to login so they can see their pension, including the contributions you’ve made as an employer.
We want young people to recognise they own their pension. Yes, maybe the money is locked away until they’re older. But it’s still theirs. Once they realise that, they’re more likely to take responsibility for it.
Information correct as at November 2018.