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Why millennials need pensions to be their flexible friend

Flexible access and shock marketing are needed to encourage millennials to save for the long-term.


by Michelle McGagh on Nov 11, 2015 at 13:50

Why millennials need pensions to be their flexible friend

Pensions are not working well for millennials and the idea of more easily accessible long-term savings could be the answer.

A government consultation in 2011 rejected the idea of a new pension system that would allow earlier access to savings for life events such as a house purchase. Although the idea was rejected, the government has vowed to revisit it in 2017 in the fresh context of pension freedom.

For millennials, those born between 1980 and 2000, a more flexible pension could be the push they need to save for retirement.

Research by BNY Mellon shows that nearly two in three millennials, 63%, said they would save more if their pension account allowed multiple withdrawals throughout their lifetime.

Half said funding for a house deposit was the most important life event for which they would want to access their pension cash, followed by 48% who said critical illness would be a reason to access savings.

The opinions of millennials should not be ignored: there are two billion millennials on the planet and by 2025 they will make up three-quarters of the workforce. More worryingly, the Office of Budget Responsibility calculates that by 2060 it will cost an extra £60 billion a year to support millennials through longer retirements.

Pensions problem

Guy Rigden, co-chief executive at financial education charity MyBnk, said pensions were part of the problem in engaging the millennial generation in saving.

‘[Pensions] do not work very well for millennials,’ he said. ‘If you do not earn a lot then you do not get a lot of tax relief, and if you are investing too cautiously, which most people are at the beginning, then they are not good.’

Paul Kelly, a millennial who was a researcher on the BNY Mellon report, said those he interviewed were frustrated at the savings status quo.

‘There is a sense of frustration that the system is still designed for 65-year-olds when it needs to be designed for 25-year-olds,’ he said.

Kelly gave the example of one interviewee who was a 25-year-old school teacher who was frustrated at the number of adverts he saw encouraging retirees to rent out their home and go on a cruise because he ‘was struggling to buy a house and he didn’t know how to save enough’.

‘Millennials want a new deal from financial providers and the government,’ said Kelly. ‘They are facing problems in saving for a home and paying student debt. They want to save but they have those challenges.’

Rigden said there was an education gap for millennials. While older generations had better pensions and were educated about them and younger generations are required to learn about finance in the National Curriculum, millennials have fallen in the gap between the two.

Radical changes

In order to engage Generation Y and Z, the government may use the 2017 consultation on pension access to make radical changes. It has already set its stall out in ‘tearing up the retirement rules’ with the introduction of pension freedom, said Aviva retirement expert Alistair McQueen, so another radical change could be on the cards.

‘There is a philosophy now that [money saved into a pension] is your money and you can do with it what you wish,’ said McQueen.

McQueen added that there had been a number of changes to pension legislation that should make pension saving more attractive overall, such as the introduction of a flat-rate state pension next year – which he is confident will still be around by the time millennials retire – and auto-enrolment, which pushes people to save.

However, there is still one more tactic the pensions industry and government is still to use to encourage saving: shock marketing.

In the research, 77% of millennials said they wanted to be told the stark reality of their post-retirement financial health and demanded more shocking messaging from financial companies.

Kelly said millennials wanted to know what a retirement spent relying on the state pension would mean for them.

‘There is a sense of ownership of the need to save,’ he said. ‘People are misinformed that millennials only focus on the here and now and want to spend life in the moment. That is not the case, they are aware of their responsibilities and take them seriously.

‘They want to be told the stark reality.’

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