The millennial generation is increasingly engaged with pensions. But a lack of financial knowledge means that they’re often struggling to juggle multiple priorities. As a result, almost a quarter aren’t saving into a pension, according to Prudential.
Whether you’re a millennial struggling to balance short and long-term money goals or a parent or grandparent to a young worker and want to provide some support, there are steps that can be taken.
If you’re finding talk of pensions confusing, it’s important to realise you’re not alone. Millennials want more support and advice on pensions, recognising their importance in providing financial security during retirement. A Prudential study found:
- 53% wish their employer would explain pensions and benefits
- 24% find pension rules very confusing
- 23% admit they don’t know if they are on target for retirement saving
- A further 28% don’t feel confident with money or financial matters
Despite feeling out of their depth when it comes to pensions, most millennials have a responsible attitude to retirement planning. However, there are still some that are falling behind:
- 69% of under 35s are saving into a pension; 24% admit to not having a pension fund
- 66% have signed up to a Workplace Pension. But 23% say their contributions aren’t high enough
- 37% believe they are saving as much as they can but still don’t think it’s enough for a comfortable retirement
- 16% don’t think they are ever going to be able to afford to retire
- 27% say pensions either do not motivate them or are not relevant to their generation
Vince Smith-Hughes, Pensions Expert at Prudential, commented: “Millennials are as responsible as other generations when it comes to pensions and the talk about Generation Snowflake feeling entitled to an easy life is not true.
“They are often under a lot of pressure to get on the housing ladder and pay off their student loans at the same times as trying to prioritise pension savings.
“Rules can be confusing, especially when you are early in your career, which is why we advise most savers to seek financial advice when possible. Employers can help to ensure they provide information and support around their workplace scheme.”
Five tips if you’re confused about your pension
If you’re struggling to get to grips with your pension or want to offer practical advice to the millennials in your life, these five tips can help:
1. Speak to your employer
For most employees, a Workplace Pension will make up the bulk of their retirement savings. As a result, speaking to your employer can help.
Your employer should be able to explain the basics. Such as the amount they contribute to your pension, the pension provider it’s held with and more. Larger companies may have a dedicated person in place to speak to you in-depth about these issues. But even if this isn’t the case they should, at least, be able to point you in the right direction for learning more about your pension fund and provider.
If it becomes clear that many employees are struggling to understand their pension and what it means for them, having an expert come in to talk to staff is an option for employers too. It can be a beneficial move for employers, as it will highlight the contribution’s they make to support staff.
2. Research different retirement incomes
Most retirees don’t get their entire retirement income from a single source. It’s more like a patchwork of different streams.
If you glance at your Workplace Pension and think it’s never going to be enough, it may simply be that you’re missing out other retirement revenue. The most obvious one here is the State Pension. The State Pension alone is unlikely to be enough to retire on. But it does supplement the other steps you’re taking to create a comfortable retirement.
Hopefully, you’re already taking other steps that will support you during retirement. For example, if you’re saving to buy a family home, downsizing in your later years can free up extra cash. Other long-term savings and investments, such as those placed in an Individual Savings Account (ISA), can be used to support your retirement goals too.
Taking a look at how retirement income is typically made up can give you more confidence.
3. Understand your current contributions
For most people, the contributions you make into a pension will have a direct impact on the amount you receive. But 37% don’t think they’re saving enough despite doing all they can, according to the Prudential research.
But do you really understand what you’re contributing and how this grows?
The money you see being deducted from your wage each month isn’t the only money that’s going into your pension. If you’re employed, it’s likely you’re also benefitting from tax relief and employer contributions too. As a result, the value of your pension could be higher than you expect; make sure you regularly check the figure.
The earlier you start saving into a pension, the more you benefit from compounding too. The money you save into a pension is invested, with the earnings reinvested to go on to generate returns of their own. At first, it means the growth of your pension fund is relatively slow, but this does increase.
So, while you may be worried about the size of your pension fund, you could be in a better position than you think. If you want to discuss your projected pension income and how to make the most of your savings, you can contact us today.
4. Assess your financial priorities
It’s clear that many millennials are struggling to balance their financial priorities. Understanding which steps can improve your financial resilience is important here.
In some cases, it can be useful to pay only minimum pension contributions and increase the amount at a later point, for example, if you have high interest debts. Another example is when you’re saving to get on the property ladder. A property can provide you with financial security in your retirement years. And you may find if you’re currently renting your mortgage payments is less. As a result, temporarily reducing pension contributions to purchase a home means you can increase them in the future.
On the other side, there are some priorities that are harming your financial security. Striving to pay off a student loan, for example, is unlikely to improve your financial position in the short or long term, especially if it’s coming at the cost of not contributing to your pension. A standard student loan has low interest rates, payments are based on your earnings and is written off after 30 years.
5. Speak to a financial adviser
Despite the confusion around pensions and other financial matters, only 26% of millennials have found out more about their financial options by seeing a financial adviser regularly. It can help you make sense of your short, medium and long-term finances, with your personal goals in mind.
With the help of an expert, you’ll be more confident in your finances, including your retirement provisions, and able to regularly review the steps you’re taking in line with your changing priorities and wealth.
If you’re confused about your pension and what it could mean for income in your retirement years, we’re here to provide you with guidance. Whether you’re a millennial, approaching retirement or want to provide support to the next generation, we can help.
Note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.