BLOG: Millennials, you need to take responsibility for your financial future
One in six people aged between 18 and 35 are unsure whether they will have saved enough to provide for their retirement. Young people must take responsibility for their savings strategy.
Already thought to prefer avocados and lattes to savings and investments, millennials are at it again, claiming to have little regard for pension provision. It is claimed many fail to prepare for retirement and are more interested in “living in the now”.
The ‘Bridging the Young Adults Pension Gap’ report indicates 44% of 18-34-year-olds have no pension provision whatsoever, compared to around 22% of those aged 35-54 and 20% of over-55s.
The study by YouGov reveals the extent to which under 35s have a poor knowledge of pensions. Almost 27% say they simply don’t understand enough about them. Even millennials who have a pension aren’t always clear about what it entails, with 14% who have a pension not knowing what type it is.
The report further highlights millennials’ fears when it comes to retirement. Under 35s are pessimistic about the likelihood of the state pension existing in the future, with over a third believing it will cease to exist at some point due to lack of funding.
Furthermore, the findings show that 58% are concerned about whether they will have enough money to support themselves when they stop working. The research finds that over one in six of these young adults who don’t think the state pension will be enough also believe they will have to rely on it regardless.
It is clear that across all generations, saving money for retirement is down the list of priorities. Among the adult population, only 21% of us regularly put cash away for retirement compared to 32% who save for their next holiday and 29% who save for a rainy day.
With the reduction in defined benefit pension schemes, a later state pension age and increasing longevity, building up an adequate pension pot is becoming more important than ever. Savers aged 20 need to put away £131 every month into a pension scheme to achieve a £26,000 annual income in retirement, research from Which? stated.
The figure rises to £198 for a 30-year-old, £338 for 40-year-olds and £633 for 50-year-olds. These assume 20% tax relief, 3% investment growth per year and a state pension top up. The research suggests saving this amount would help buy a retirement fund total of c.£370,000 after tax, suggesting an annual income of £18,000 in retirement would cover essentials while an income of £26,000 would allow greater spending on holidays and leisure.
Financial acumen and healthy money habits can be difficult to develop at any age however, they can prove particularly elusive for the young. The industry can do more. Pension schemes need to be modernised to be appropriate for younger savers. How about an online and interactive pension that can be managed on a smart phone alongside your bank account with links to voice activated devices to make contributions or investment decisions?
There is much that the pension industry can do but young people must also take responsibility for their savings strategy. They need to take a look at how much money comes in every month, how much goes out, and where it goes. Take a look at how much is set aside in savings and how much is actively contributed to saving each month. Just by having a clear view of exactly what makes up our financial accounts goes some way in taking responsibility for our financial futures.
It is clear that the government, pension providers and financial advisers all have important roles to play in speaking clearly and positively about the benefits of long-term saving.
Dan Brent is a consultant at Thomas Miller Investment