According to research published by the Money And Pension Service1, only a third of UK children learn about managing their money in schools and colleges. As a result, they are unlikely to focus on pensions and later life financial planning if they do not have a grasp of the basic fundamental skills to managing their income and expenditure. Perhaps therefore, we should pay particular attention to pensions in helping to create a financial plan which achieves their short term, medium term and long-term financial goals.
For many young employees, the pension scheme membership remains an item on a ‘tick list’ simply to gain the employer’s contribution and therefore maximise their total reward. There are far more desirable financial objectives such as owning a home, getting married, owning a car and having access to the latest technology. In financial education seminars, 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. 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 and, as it is clearly not taught in schools and colleges, the burden is now falling on the employer to help their employees with financial wellbeing.
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 not just join, but remain in their workplace pension and perhaps even increase their contributions over time.
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 and 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, a pension should be an important consideration of a young person’s financial plan. The benefit of tax relief plus the employer contribution should not be ignored. However, we also highlighted the other financial considerations young people face. It is therefore important that employees look to encourage their young employees to pay closer to attention to their wider financial wellbeing, including but not solely focusing on their pension saving.
