Therefore, for this piece, we have two views, dissecting what the best route of attack is for employers trying to achieve this. Is it by pensions alone, or by using pensions as a route to other financial discussions?
Nick Howarth: pensions remain a priority!
According to Scottish Widows’ Retirement Report 2018, the number of under 30s saving enough for retirement has increased by 9%. Despite this, more than one in five young people are still not saving anything for later life.
These statistics suggest that while automatic enrolment continues to have a positive impact on young people’s pension provision, there is still a high proportion being left behind. This is more alarming given that research from Canada Life highlighted that one in five 18-24s think the state pension won’t exist by the time they retire.
It is therefore important employers invest in their employees’ long-term future by helping them engage with their pension. If these employees are to be the next generation of business leaders, helping them plan for retirement in good time could have lasting benefits to both employer and employee, with the potential to boost long term staff retention, too.
Adrian Firth: are pensions now less of a priority?
According to research published by the Money Advice Service, one in five young adults (22%) are not confident in managing their money . This indicates they are unlikely to focus on pensions and later life financial planning – they don’t have a grasp of the basic skills to manage their income and expenditure, after all.
Perhaps, therefore, we should put pensions further down the ‘to do’ list and spend time educating and helping them create their short, medium long-term goals – for many young employees, the pension scheme membership remains an item on a ‘tick list’, simply to gain the employer’s contribution, thereby maximising their total reward.
Instead, there are far more desirable financial objectives nowadays, such as owning a home, getting married, owning a car and having access to the latest technology. In financial education seminars, for example, many younger employees show greater consideration for balancing their socialising budget than they do their pension contributions!
So perhaps education remains the highest priority – and not just on pensions, either. ISAs can be a real benefit when saving for big ticket items and help our employees get into the ‘savings habit’. Learning about income and expenditure and getting used to budgeting is a high priority because, as it’s not taught in schools and colleges, the burden is now falling on the employer to help their employees with financial wellbeing.
What I think both Nick and I can agree on is this: engagement is key! Below are some ways employers could encourage younger workers to engage with their finances and pension schemes:
Financial education
Employers could pay for a financial professional to help employees with their finances including – but not exclusively – information on their pensions. If employees can see the long-term benefits of tax relief and pound-cost averaging (the benefit of investing regular amounts over the long-term thus reducing the risk of market timing), it might just convince them to remain in their workplace pension and perhaps even increase their contributions above the minimum required.
Highlight the employer contribution
Although employers pay into automatic enrolment schemes as well as the employee, it is likely that without effective communication, they will either be unaware of this or not attach value to it. By providing regular updates on the pension, outlining the employer contribution, the message should hopefully hit home.
Get online
If employers can encourage employees to login to see their pension like they do, say, their online banking, they are more likely to appreciate the benefit of tax relief and the employer contributions on top of their own payment. This in turn should hopefully lead to an increase in engagement in the pension in a long-term and sustainable manner.
Summary
As you can see, pensions should be an important consideration of a young person’s financial plan, the benefit of tax relief plus the employer contribution not going unnoticed. However, as we have highlighted, there are other financial considerations young people face. Therefore, it is important employers look to encourage their young employees to pay closer to attention to their wider financial wellbeing, perhaps not solely focusing on their pension saving.
[1] https://adviser.scottishwidows.co.uk/assets/literature/docs/2018-Retirement-Report1.pdf
[2] https://www.canadalife.co.uk/news/public-pessimistic-on-future-of-state-pension-provision
[3] https://masassets.blob.core.windows.net/cms/files/000/000/888/original/Young_Adults_and_Money_Management_-FINAL.PDF