Gen Z are more likely to care about their pensions than Millennials and Gen X, as more than a third of 35 to 54 year olds admit that they don’t take an interest in their retirement savings.
According to data from InvestEngine, 64 per cent of 18 to 34 year olds said they were engaged with their pension, while 70 per cent of over 55s reported having an interest in their savings pots.
That fell to 58 per cent among people in the 35 to 55 age group, who often face other life commitments and milestones that take their attention away from pension saving. Homebuying and having children sees their finances diverted from their retirement fund.
Pension pots: Many UK workers aren’t saving enough money for retirement, it is feared
Although many are likely to be paying into a pension under the auto-enrolment scheme, if they aren’t engaging with their pot they could be missing out on higher contribution matching opportunities offered by their employers.
People also run the risk of forgetting about certain pension pots when it comes to drawing their pension.
Andrew Prosser, head of investments at InvestEngine, said: ‘While automatic enrolment has undoubtedly been a huge success in reversing the decline in workplace saving, it has arguably exacerbated this lack of engagement we’re seeing today, particularly among middle-aged adults.
‘Indeed, this group needs to be most engaged, as the later they leave it the less time they will have to benefit from any potential returns on their pension investments.’ His firm surveyed 4,000 adults across the UK.
By neglecting to save now, Millennials and Gen Xers are likely to face problems further down the line. Data from the Department for Work and Pensions indicates that 38 per cent of the UK’s working population, or 12.5 million people, are not saving enough money for retirement.
However, cutting your pension contributions isn’t always done out of ignorance. More often than not, the realities of life simply get in the way.
Sean Cope, 36, reduced his pension contributions before he bought a flat last year, instead using the extra money to maximise his deposit.
‘After using the entirety of my savings, I didn’t really have much left, and then had to do some renovation around the flat, so I was just looking to cut costs where I could,’ Sean told This is Money.
Before stepping onto the housing ladder, Sean had increased his pension contributions, having worked freelance for five years previously.
‘For about a year or eighteen months I was active in paying above the auto enrolment contribution, but prior to that I was totally unengaged. I have no idea where previous pots are from previous roles over the last 10 years, I still don’t know where a few of them are,’ he said.
‘This year’s financial priority is just to pay off my credit card. I’m trying to clear all of that and have a blank slate, then I can start planning for the future a little bit more.
‘Given that I have around 30 years of work left, paying into my pension, I hope that will be enough to top up the contribution.’
According to data from wealth management firm Saltus, 79 per cent of grandparents are providing their adult grandchildren with financial support of £11,000 per year on average, to help them with rent, mortgages, higher education and other bills.
As a result of offering this support, 14 per cent of grandparents have reduced their own pension contributions.
Mike Stimpson, partner at Saltus, said: ‘It is hard to know how long this level of support will go on, or if it will become more commonplace as the cost of living crisis continues to bite, but it certainly stresses the importance of effective financial planning in order to ensure your money goes furthest when it is needed the most.’
Research from Resource Solutions shows that Gen Z is the generation most worried about retirement, with 72 per cent of young adults worried that they may not be able to stop working at the state pension age due to their finances.
Some 70 per cent of Millennials also reported having similar worries.
The fears come as a study from the International Longevity Centre suggests that the UK will need to raise its retirement age to 71 from the current 66 by 2050 in order to maintain the current number of workers per state pensioner.
Andrew Prosser of InvestEngine said: ‘The idea of retirement can often feel too far away to prioritise for many young and middle-aged adults, particularly during such challenging economic times, but the risks of not engaging early can be significant. ‘
Working longer: Research from The International Longevity Centre shows that the retirement age may need to rise to 71 by 2050
For 24-year-old Leo Hodges, however, his future savings are at the top of his mind.
Leo was interested in saving while at university, where he faced a tighter budget while living on a student loan.
‘If I could track it as much as possible, then I could still really enjoy myself, go out, go for dinners and all that stuff, whilst also saving a little bit for either big things like holidays, or for the future,’ he told This is Money.
Now paying into a pension, he capitalises on his company’s pension scheme, contributing an extra percentage of his income every time he receives a pay rise, which his employer then matches.
‘I can fit that within the life I want to have, I can go out with mates and all of that, but still add that one per cent each time I get a pay rise.
‘I try to add one-off contributions every month,’ he added. ‘I have a spreadsheet where I track all of my outgoings and incomings, so at the end of the month I can see whether I have £400 left over or £100 left over. Then I can base my contribution on that.
‘I think all of that data and those statistics [about the current cost of living] do push you one way or the other. It’s either ‘I’m never going to afford it so what’s the point’, or ‘that’s a horrible statistic, I’m going to have to really prepare and create a tragic spreadsheet that all my friends laugh at’.’
On the other hand, Dr Nisha Prakash of the University of East London said: ‘In general, the Generation Z are soft savers. They would rather spend on accumulating experiences rather than saving for retirement.
Last year, Jen Tait set up Rise Lettings Group to invest in property ahead of her retirement
‘However, the pandemic had a significant change in how Gen Z and millennials perceive the utility of money. With lockdowns confining families within homes, the young adults were exposed to the perils of having low savings amidst economic uncertainty.
‘I am not sure whether this trend would continue even after the economy stabilises. I believe that once the growth kicks in, focus for the young earners will once again shift to consumption.’
Of course, paying into a pension isn’t the only way of saving for retirement. Jen Tait, 41, hasn’t paid into a pension since 2010, but not for a lack of interest in building a future for herself and her children.
Jen, who is the director of her own company, Rise Learning Group, said: ‘It is less that I can’t be bothered, and more that I don’t trust pension schemes. They create a finite pot of money that will run out as you draw from it.
‘Investing in property, on the other hand, means that pot will continue to rise in value, and I will both earn money from the rents from these properties, and the value of the pot will continue to grow.’
Last year, Jen set up a lettings company, with entering her 40s having ‘spurred’ her into acting on the interest she had always had in property.
‘I wouldn’t be surprised if many self-employed people haven’t thought about their pension, or don’t pay into one, she added. ‘I think most self-employed people will have an alternative plan to a pension, or won’t have a plan at all.’
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