At a glance
- Young people ‘confused’ about how pensions work
- Brits of all ages do not think they will have enough for retirement
- Financial wellbeing strategies can help address the issue
A significant proportion of young people in their 20s and 30s are confused about pensions and how they work, as experts call on the industry to do more to improve pensions engagement among young people.
The majority of millennials polled in industry research carried out by investment management company Invesco for their ReDefined Contribution Schemes report, admitted they did not know what happens to their pension savings. 54 per cent mistakenly believed their pension income would earn a fixed amount of interest in savings accounts.
While those closer to retirement appeared to be more aware of the ins and outs of pension schemes, there was still a ‘knowledge gap’ across the UK workforce, regardless of age. There were also differences in how age groups perceived their pensions. 69 per cent of older age groups saw pensions as an income while just under half of millennials tended to view pensions as savings.
The report also highlighted another trend across age demographics - people of all ages expressed concern that they would not have enough money to get them through retirement, with one quarter admitting they didn’t know how much they would need for retirement.
Improving pension communications
When asking Defined Contribution (DC) scheme members specifically about pension communications, respondents, particularly those in younger age groups, said they preferred ‘direct and honest language’ with jargon-free facts.
The Invesco research is not the first report to identify an understanding gap among young people. In August last year, Aon reported that a quarter of 18-35 year olds were unaware of how pension schemes work.
Of the 2,000 respondents to Printerland.co.uk research last year, 45 per cent didn’t know how much they will have in their pot when they retire. Around 24 per cent believe that they wouldn’t be able to afford to retire and 24 per cent expect to continue working beyond the retirement age.
The research also found that 19 per cent cannot afford to invest in their pension savings and 18 per cent don’t have enough spare cash to save outside their pension contributions.
Speaking at the time, Aon’s Chris McWilliam commented that the Printerland survey ‘aptly demonstrates’ that people struggling with current financial issues such as student debt and the rising cost of living, tended to view retirement as too far away to need to do anything about it.
Financial wellbeing strategy
There’s an opportunity for employers to proactively implement a financial wellbeing strategy to help support their employees. It’s an area on the cusp of huge growth; Aon’s 2018 Global Financial Wellbeing Survey also showed that although only 14 per cent of respondents currently have a financial wellbeing in strategy in place, 62 per cent expect to have one in three years’ time.
“The Invesco survey shows that employees still do not fully understand their workplace pensions, which means they are unlikely to be meeting their retirement goals and that the employer spend is not valued,” McWilliam continues. “This knowledge gap is affecting employees of all ages. Linked to this, Aon's survey also noted that 53 per cent of employees still expect to be working at 67, with just 31 per cent expecting to retire fully at retirement age. This has knock on effects in terms of succession planning and productivity within businesses.
Having a co-ordinated approach to Financial Wellness will therefore bring tangible benefits to employers and the tools to help employers in this space are rapidly developing.”
Let us help you
We understand how confusing pensions can be for your employees – of any age. We provide expert support to help you communicate with employees about their scheme, via face-to-face meetings, easy-to-understand collateral or via our digital platforms.
If you’d like to see how we can help you improve member engagement, email us at firstname.lastname@example.org or call us on 0344 573 0033.
Aon UK Limited is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales. Registered number: 00210725. Registered Office: The Aon Centre, The Leadenhall Building, 122 Leadenhall Street, London EC3V 4AN.