PART 1 OF 5
In the first of a five-part series, Tom Hibbard, Head of Pensions Business Development at Simplitium, assesses the major problems resulting in a lack of engagement among Millennials with their pension provision.
In today’s money, Millennials are projected to have about £56,000 in their DC pot and no DB pension at all at retirement. Compare this to the estimated £400,000 they will need at least and you have the combination of a hefty shortfall and alongside Brexit, arguably the greatest socio-economic problem facing the UK since WWII.
I read recently that the UK has the third worst savings rate of the 35 OECD nations, a paltry -0.4%. It seems the era of easy credit and over-consumption has lasted well beyond the Great Recession. As someone who falls right in the middle of the millennial generation, I have first-hand experience of these issues. At dinner with some friends recently, having heard so many comments about how the youth of today don’t understand their pension, I steered the conversation towards pensions to see what my friends who aren’t connected to the industry think about the topic.
I naively thought that they would have at least considered the subject and their available options. This, as I’m sure you’ve guessed, was not the case. At this point, a well-educated friend I’ve known for years just looked at us and said that her credit card overdraft was her only financial concern. After a couple of minutes, we managed to establish that she had racked up £5000 in debt over three years since graduating and was just about managing to pay off the interest every month. Asking her how this had happened, her reply was simply, ‘Spending more than I earn each month’! Some of the others then admitted that they didn’t know any of the details of their pension or whether they even had one. We in the industry all know that they do because of auto-enrolment, as they do now, but it highlights the general lack of awareness.
This isn’t an isolated example; at a macro level, approximately 94% of people within DC pension setups in the UK are in the default fund, meaning that only just over 5% have any active engagement with their scheme. In Part 2, let’s think about why this group is so disengaged with such an essential part of their future?
Looking for another entry in this blog series?