31% of savers aged 18 to 34 stated that they knew what their pension was invested in, compared to 21% in the next age bracket. The research also found that younger savers were more interested in domestic investment, something the government is actively promoting, and more likely to have made changes to their pension investment options.
Stuart Price, Partner and Actuary at Quantum Advisory, said: “The findings are very encouraging, and I would expect this trend of young savers actively engaging with pensions and making informed decisions regarding their pension investments to continue. With financial literacy provision improving in schools, as an embedded aspect of the Curriculum for Wales and extended provision set to be introduced in England, the next generation of savers should be equipped with a better understanding of budgeting, investment and pensions.
“However, financial education should not come to a halt as young employees enter the workplace. We must not allow this interest from young people to wane or for the generational divide in pension engagement to widen.
“From onboarding to retirement, employers can lead on support and further education for all employees in both group and one to one settings, providing clear face-to-face, written or online communications about pension scheme matters tailored to different stages of working life, and signposting to additional resources and guidance from trusted providers and organisations.”
In addition to facilitating career-long financial education, employers can also make a difference to their employees’ retirement adequacy by increasing minimum auto-enrolment (AE) contribution levels.
Since 2012 employers have been required to provide a workplace pension scheme and automatically enrol employees aged between 22 and the State Pension Age who earn above £10,000 per annum. The minimum AE pension total contribution is now 8%, with an employer contribution of at least 3% of qualifying earnings, which means that contributions from both the individual and employer only start on earnings above £6,240.
Polling from the Standard Life Centre for the Future of Retirement has found that over two in five business leaders believe minimum AE contribution levels should increase, with strong support for a gradual approach to reform through a phased timetable. This proposal is more popular among larger and medium-sized employers, with 54% of businesses with more than 250 employees and 50% of employers with between 50 and 249 staff backing an increase.
Stuart Price added: “Auto-enrolment is one of the most effective formats implemented within the pension industry. Younger workers, combined with education and support from their employers, can form a solid foundation of saving for retirement as soon as they start their working lives. Once the Pensions (Extension of Automatic Enrolment) (No.2) Bill is officially implemented, employees from the age of 18 will also benefit greatly.
“The current minimum total contribution of 8% of a salary is realistically not enough to provide recipients with a comfortable retirement, so we welcome the interest from business leaders to increase the minimum contribution levels from all employers. This could be actioned, in a phased approach as was done upon the introduction of AE, but small businesses which make up the majority of private sector businesses in the UK and who generally currently pay the minimum amount could potentially struggle, having to make sacrifices elsewhere to support their employees in this way.
“However, in my view this is a sacrifice worth implementing as if people do not start saving more for their retirement then as a nation we are going to have a huge problem with people not being able to afford to retire until much later in life or not even at all!”
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