Millennials taking a greater interest in retirement planning
Millennials.
If the media is anything to go by; they are lazy, entitled narcissists.
However, new research from Prudential reveals that the demographic commonly blamed for being more interested in selfies than Self-Invested Personal Pensions, has in fact taken an interest in retirement planning.
Millennials, more than any group in history, will have to take retirement planning into their own hands. New research shows that this planning is being taken seriously is promising, but exactly how can young workers ensure that their retirement prospects are as bright as possible?
Thinking of the future
In a survey of 740 young adults, Prudential found that 58% considered the quality of the workplace pension on offer before taking a job.
The number of young workers taking pensions into consideration is relatively high. However, they share a bleak outlook about the level of income they will receive in retirement. Just 38% believe that they will match the standard of living that today’s pensioners have, and over half stated that they were envious of those retiring in the near future.
Kirsty Anderson, a retirement expert at Prudential, said: “It’s a welcome surprise to see many younger workers thinking about planning and saving for their retirement. The success of automatic enrolment means that many of them will now be saving into pension schemes for the first time, but what these figures show is that they are going above and beyond the bare minimum required and setting aspirations to match their grandparents’ quality of life when they give up work themselves. But favouring one employer’s pension scheme over another and setting goals for their quality of life in retirement are only the first steps for younger pension savers. Pension saving is for the long-term and the members of the millennial generation who are most likely to be best placed when they retire will be the ones who have saved as much as possible into a pension for as long as possible in their working lives.”
Top tips
Prudential reveal that many young workers are already cutting back on spending and making an effort to save more for retirement, with:
- 31% planning to cut back over the next 10 years
- 30% considering moving to a less expensive part of the country
- 29% planning to take professional financial advice
So, with Millennials starting to think about the future, what exactly can they do to ensure that they are as financially secure as possible?
Start early: It’s never too early to start planning. Even if you don’t know exactly how much you need to save at the moment, putting something away is better than nothing, and helps to form a solid saving habit. Choosing an easily achievable minimum amount (even if it’s a few pounds) is a good starting point. It can be scaled up when you can afford it, and down when you can’t.
Take advantage of a workplace pension: A workplace pension offers an effective way to build up a pension pot, as three parties pay into it:
- You
- Your employer
- The Government (in the form of tax relief)
Think beyond the minimum payment: Auto-enrolment means that most UK employees will be paying into a workplace pension by February 2018. A minimum payment structure is in place (Source: GOV.UK), meaning that the three parties will have to pay:
- Employees: 0.8% of qualifying earnings (rising to 4% by 2019)
- Employers: 1% of qualifying earnings (rising to 3% by 2019)
- The Government: 0.2% of qualifying earnings (rising to 1% by 2019)
Qualifying earnings are decided by your employer, and can either be:
- Your entire salary before tax
- The amount you earn between £5,876 and £45,000
Whilst the minimum amount is a great starting point, it won’t be enough to retire on. Being automatically enrolled is just the beginning; it’s up to you to ensure that you’re on track for a comfortable retirement.
Focus on reducing charges: Being an early bird won’t mean much if charges peck away at your pension contributions. Ensuring that your charges are as low as possible now will be worth it over the long term.
Have a plan: Retirement is an abstract thought for the many young people starting their working lives, but it will eventually happen (honestly!). Whilst it may not be possible to know exactly what you’ll want to do in retirement yet, it pays to think realistically about roughly how much money might be needed. Putting money away in a haphazard manner is definitely better than putting no money away, but having a purpose and a goal can make it much easier to stay on track.
Take advice: Taking advice earlier in life can increase your level of preparation for retirement (Source: Unbiased). For example:
- 71% of 18-24 year-olds who took advice felt well prepared for retirement
- 52% of 25-34 year-olds who took advice felt well prepared for retirement
- 41% of 35-44 year-olds who took advice felt well prepared for retirement
- 39% of 45-54 year-olds who took advice felt well prepared for retirement
If in doubt, taking professional advice can ensure that you are setting yourself up in the strongest possible position to ensure that you will one day be able to retire and afford a decent standard of living.
For more information about starting the long path to retirement planning, don’t hesitate to get in touch using the phone number at the top of the page.
