Two in five workers aged under 30 face a pension shortfall when they reach retirement age. Despite auto-enrolment, many either aren’t saving at all or are failing to put enough of their income into a pension, research from Scottish Widows found.
The statistics should be a wake-up call for millennials to review their pension contributions and consider the retirement lifestyle they’d like.
If you’re a parent or grandparent to a millennial, you likely already have your pension squared away. But engaging with the next generation about their pension plans is important for their financial security. Taking steps to set aside income now means they’re more likely to look forward to a smooth transition into a comfortable retirement when the time comes.
Since the beginning of last year, all employers must offer eligible employees a Workplace Pension that they are automatically enrolled in; with both the employee and employer making contributions.
Auto-enrolment has encouraged more employees under 30 to save for their retirement, the research from Scottish Widows discovered. Over the last the year, an additional 9% are now considered to be saving into pensions adequately. However, many still aren’t.
- 39% of workers aged 22 to 29 are saving adequately for retirement
- 20% are saving seriously less than 12% of their income, the point Scottish Widows considers adequate
- 21% aren’t saving anything at all for later life
There are many reasons millennials aren’t saving enough for their pension, including pressure on wages, lack of understanding and ineligibility for a Workplace Pension.
Since the financial crisis inflation has outstripped wage growth. It’s led to many young workers facing pressure on their finances. It’s one of the core reasons people are choosing to opt out of a pension scheme.
A third of people who were not contributing to a pension said they couldn’t afford to and 18% stated they had too many other expenses, analysis from Equiniti found. When money is tight, the findings suggest that pension contributions are one of the first areas to be cut.
Lack of understanding
The research also found that a lack of knowledge about pensions was leading to employees deciding against contributing:
- 13% said they did not know enough about them to contribute financially
- 39% did not understand enough about pensions to make decisions about saving for retirement
A lack of confidence can mean millennials aren’t engaging on this important topic
Ineligibility for a Workplace Pension
To be automatically enrolled in a Workplace Pension and benefit from employer contributions the employee must meet eligibility criteria:
- Aged between 22 and the State Pension age
- Earn over £10,000
For millennials that earn below this threshold or work multiple jobs, it means they aren’t benefiting from auto-enrolment. Nearly two million people have more than one job and are missing out on over £90 million in employer contributions, according to Scottish Widows.
Robert Cochran, Retirement Expert at Scottish Widows, said: “It’s encouraging that more young people are saving enough for a decent retirement and auto-enrolment has played a really important part. However, auto-enrolment was designed as a safety net for a country facing a pensions crisis. This year’s study shows some of the hardest working and most financially vulnerable members of society are slipping through the auto-enrolment net because of minimum earning thresholds for enrolment.”
Four reasons for millennials to start retirement planning now
Whether you’re a millennial that’s been putting off saving into your pension or you know someone that’s not planning for their retirement years, there are lots of reasons for the younger generation to think about their pension now.
1. Benefit from employer contributions: If you’re eligible for a Workplace Pension, your employer will be contributing too. The current minimum employer contribution is 2%, rising to 3% in April 2019. For workers, it’s essentially ‘free money’ that means their pension will grow quicker.
2. Take advantage of tax relief: Both Private and Workplace Pensions also benefit from tax relief. Usually, it will be added automatically to your pension, giving a welcome boost to the money you’re contributing.
3. Build financial resilience: Financial security is important for wellbeing. While it’s easy to focus on the short term, looking beyond that is important. Saving with your retirement in mind can help you build financial resiliency over your lifetime.
4. Achieve retirement goals: Even if you’re at the start of your career, you’ve probably thought about what you’d like your retirement years to be like. The sooner you save into a pension, the easier it will be to save with these goals in mind and turn them into a reality.
If you’re worried you’re not contributing enough to your pension or want to understand the expected income it will generate, you can contact us today.