Solving the Millennial pensions problem
- 28 Jun 2018
The term ‘pension’ does not strike a chord with Millennials, who instead associate it with a distant time, a distant concern. And that is why far too few are saving for a secure future. IPSE’s latest report – ‘How to solve the self-employed pensions crisis’ – outlines both the severity of the problem and the role the Government and pensions industry must play in engaging with self-employed Millennials.
In researching the self-employed pensions crisis, we hosted two Millennial-specific focus groups, which deeply analysed the barriers this group has encountered in saving for later life. The focus groups had three headline findings:
- Millennials have other financial priorities;
- Millennials see themselves in careers that won’t be limited by age;
- Ethical investment opportunities are in heavy demand.
Younger people have a wide range of different financial priorities. Whether it is saving for their first home, travelling or even a wedding, younger people place less importance on saving for later life and instead prioritise financial stability in the here and now. One focus group participant explained that, because of their age there was a downward pressure on their earnings, which made it difficult to balance their present and future priorities.
The ComRes survey found that 17 per cent of respondents had financial priorities which ranked ahead of saving for later life. For example, with prices rising dramatically since 2010, home ownership is a priority for many younger people.
Many Millennials are now working in different careers than their parents’ generation. One participant even suggested that pensions were only for those working in manual jobs. Since 2001, the number of self-employed 16-24-year-olds has increased seismically from 104,000 to 181,000. Many of these individuals will be working in a digital capacity, for example website design or social media management. A lot of focus group participants stated that they didn’t anticipate retiring from these professions and therefore hadn’t identified a need to actively prepare themselves financially now.
One way to increase engagement with Millennials is through the exploration of ethical investment opportunities. The World Economic Forum recently identified 18-to-35-year-old’s as the demographic most concerned with climate change, inequality, poverty, food and water security. With younger people looking for ways to engage with socially responsible causes, ethical investment opportunities provide them an incentive to save.
Pension providers must use this information to advertise these opportunities to younger people. By doing this, the industry can build their brand around ethical investments – such as green energy supplies – and younger people can reap the social rewards.
Due to the power of compound interest, £1 saved today could equate to £5 in the future. If the industry and the Government manages to incentivise an increase in the number of Millennials saving for later life, it will help boost the economy – long-term – in two ways. First, there will be less pensioner poverty, therefore purchasing power will not be squeezed in the long-run. Second, it will take pressure off Government spending as people may find themselves in a position of better financial security come retirement. And it is these long-term benefits that means it is imperative we urgently tackle the self-employed pensions crisis. For it just doesn’t just benefit them, but the UK’s economic future too.
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