22nd February 2016 at 3:30pm
Some interesting research from professional services firm, Willis Towers Watson suggests that nearly three-quarters of UK employees believe they will be worse off than their parents’ generation.
The research found that while 60% of people in their 50s are not too concerned about their immediate or long-term finances, younger employees are the most likely to be worried about both, with 1-in-5 (20%) seen as ‘struggling’.
While this might seem some sombre news, what is actually encouraging is that the younger generation is waking up to this potential reality, when they still have time to do something about it.
A matter of priorities
The immediate financial priorities facing employees in their 20s and 30s – including student debt, housing deposits and childcare costs – can make it difficult to prioritise long-term issues such as retirement savings.
But the first step to problem solving is often realisation, and by acknowledging these concerns about future provision, it means these millennials can start thinking about how they will tackle the issue.
A positive start
Auto-enrolment has been a positive from this perspective. With employers now needing to provide a workplace pension scheme and make payments for certain employees, it makes it easier for millions of young people starting out on the career ladder to gain a first step on the savings one too.
With employers adding money into their pension scheme for them, and a top up (known as tax relief) from the government of up to 25% depending upon the type of scheme, it can give them strong basis from which to build.
A good innings
The secret to a potentially comfortable retirement nest egg is about playing the long game. I’m going to use cricket as an analogy here – some might believe you can start later and play catch up, gambling on scoring a series of late sixes with your investments; however a string of less exciting singles over a long period can be a better plan.
The reason you win by starting young with just small amounts is that time is on your side. The longer you have, the bigger the pile you’ll amass.
Compound interest steps into bat – you get interest on interest, and even though the sum is smaller to start with, the passage of time and multiple compounding periods add to your money’s batting average. Of course, as with any investment there are no guarantees your money will grow, but you are reducing your chances of being left on a sticky wicket.
A helping hand
It’s also becoming increasingly popular for parents and grandparents to lend a hand too by matching their child’s contribution, thus bumping up that monthly input even further.
The risk of any youthful irresponsibility is not an issue with a parental pension contribution, because the child cannot access it until the age of 55. But it could transform their offspring’s longer-term financial future in an eye-opening way.
A good news story
The news that young people are at least worrying about the future is positive. It’s a hard message to get across to someone in their 20s, as 30 or 40 years down the line might not seem that relevant to them or as much fun as living today.
They just need to understand that providing for it now doesn’t deprive them of many of life’s pleasures today: set a little aside and it can go a long way.
By paying what they can into a pension, add in that employer contribution, the free money from the government and any potential payment from a loved one, it can make for a tidy little sum each month on which to build. They can still have fun but also take comfort from the fact they have given themselves a head start, and hopefully dispel some of those money woes mentioned earlier.
The information in this blog or any response to comments should not be regarded as financial advice. A personal pension is an investment and its value can go up or down and may be worth less than you paid in. Laws and tax rules may change in the future. The information here is based on our understanding in February