Young people are failing to save enough for old age but we should not berate them. The pensions industry needs to offer more guidance to quantify the long-term effects of saving for retirement and do more to tailor products for their generation.
The degree of uncertainty over the returns a young worker will receive from a defined contribution pension, over the next four or five decades, is so huge that they feel little compulsion to put money away in a pension scheme.
Imagine a 21 year old, fresh out of university and in her first job. Every day, the newspapers tell her to get on the property ladder or report the rising cost of living in the UK. Meanwhile her employer is probably encouraged her to put money away for retirement.
But what incentive does she - or other young professionals – have when at the end of the year, her benefits statement shows a depressingly paltry pension pot? Even taking into account the four or five decades to build that pension, she has little certainty about what those savings will amount to upon retirement.
I find it surprising that the pensions market for those in their 20s to early 30s remains untapped by providers, especially with the emergence of auto-enrolment and the growing selection of digital marketing channels.
If providers offered greater clarity about what their schemes offered, and perhaps extended their product range to better accommodate the needs of younger savers, they could boost uptake.
Tandem savings schemes, for example, would help employers encourage younger workers to recognise the importance of short-term saving for items such as deposits on a house.
Pensions providers must be careful not to bully people into saving for retirement. People resent being told what to do and as a consequence, would be less likely to do it. Additionally, this won’t entice employers to incentivise their workforces either.
The media and wider pensions industry have been far too ‘preachy’ in telling young people how to save. Given that their pensions and savings schemes will offer far less security and monetary value than previous generations, it is advice they might find hard to swallow. No wonder that the industry has struggled to engage young professionals.
Employers and saving scheme providers need to show they recognise the struggle younger workers are facing and try to offer practical solutions and more flexible saving products. Do this and they might feel like saving is a worthwhile endeavour.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.