City Survivors: Millennials and the great pension shortfall
Millennials (yes, it’s that buzz word again) are reportedly not saving enough for retirement, which unfortunately comes as no real surprise.
Recent figures show that 50% of adults aged 22 to 29 pay less than 3% into employee pensions, and a talk I went to by the Pensions and Lifetime Savings Association (PLSA) had a stark warning.
It seems our obsession with getting on to the property ladder will come back to bite us 18-to 35-year olds on the proverbial bottom in retirement when we find we don’t have enough money to live off.
The PLSA says there are likely to be two scenarios coming to the forefront. The first is that we’ll be a generation of renters, taking this high level of expenditure with us into retirement. The second is that we’ll buy homes later in life, meaning we’ll spend less time saving into a pension.
These are both largely a result of rising rents and house prices, plus wage stagnation – as backed up by the PLSA’s findings. When asked by the association what prevents the younger generation from saving, 48% of those surveyed said the cost of living is too high, while 43% said their salary is too low. One in three (30%) meanwhile, said the cost of their rent or mortgage stops them from saving.
And while we’re more often than not painted as a so-called ‘YOLO’ (that’s ‘you only live once’ duh...) generation, the vast majority of us want to save. More than half of respondents (51%) said they get more satisfaction from saving money than spending it.
So the key question is, what can we do about this Catch-22 situation? Perhaps some millennials will be thrown a lifeline by inheriting wealth from baby boomers. But we can’t rely on this – baby boomers themselves may need the cash to pay for ever-rising care costs.
So we’ll cross that idea off our imaginary blackboards (or perhaps that should be interactive whiteboards given I’m a millennial and all?).
One saving grace could be the forthcoming Lifetime Isa, catchily dubbed the ‘Lisa’. Announced in this year’s Budget, the idea is that anyone aged between 18 and 40 can save up to £4,000 a year and get a bonus of 25% from the government, worth up to £1,000, payable at the end of each tax year.
The money can be used to help savers buy their first home, or it can be kept until 60 and put towards retirement. Lisas are due to launch next April, although doubts have been cast over whether products will be ready in time – I’ve seen at least one provider puts its hands up and admit it can’t commit to offering a Lisa from that date.
Plus, while the Lisa and its intentions are all well and good, it doesn’t really help those who can’t afford to save in the first place. So what’s being done to help these people?
Auto-enrolment is one solution. Launched in 2012, the initiative sees those aged between 22 and state pension age who earn more than £10,000 a year automatically opted into their workplace pension. According to the PLSA, only 7% of those aged under-35 have opted out.
As this money is siphoned off your pay packet, meaning you’ll never see it, that old adage of “you can’t miss what you never had” comes into play. But more needs to be done.
I only hope future generations are better off – perhaps due to new government initiatives or the encouragement of a more ‘money wise’ mentality.