Making pension saving and investing easier for the young

By Sara Neidle

Pensions. What is the deal with pensions? Why isn’t this filtering through to the younger generation about the importance of pensions? Let’s be honest, all you need to do is flick to the weekend’s personal finance sections and there is guaranteed to be at least one pensions story. So where are we going wrong?

There has been a big focus on how younger people engage with their pensions saving and investing. Recently, I listened to an interesting webinar hosted by the Financial Times featuring media commentators, Claer Barrett and Josephine Cumbo on how to deliver a better pension deal for the young. The pensions crisis for the young is nothing new. Josephine Cumbo argues that a third way is needed between paternalism and financial individualism. She argues that a collective pension offers the young hope for a decent retirement. It's great to see how the media and industry commentators are really getting involved and are making a strong case for better measures for younger savers and investors. I hope this continues.

I think it is more than this. Today’s young are very much aware of the ‘pensions gap’ (if that’s what we can refer to it as) between what our parents and grandparents were able to achieve typically via a defined benefit scheme (a guaranteed income for life), and what the young now need to do in order to secure a decent retirement via a defined contribution scheme (a pension pot built up using your contributions and your employers contribution). As a result, the onus falls on the individual. How much should one contribute to their pension pot? What are the investment fees? How is the money being invested? As a mother, how will this impact when going on maternity leave? I think you get the idea.

We know that it is not easy, and we also know that it is only going to get more difficult unless there is some intervention. Unless there is something bridging that gap. I do not have the answer, but we need to break down these barriers and cater to the younger generation. In doing so, it will make them more engaged, it will encourage them to think about their pension, and investments in general.

I do think the past year has shown that there is an appetite from the young to find out more. It’s just been done in their own way. Let me give you an example. You may have read in March about a Financial Conduct Authority (FCA) report warning about young investors taking on big financial risks, after the whole Reddit frenzy, and young investor engaging in high-risk investments such as cryptocurrencies. I think we agree that this is very high risk. But isn’t this also a wake-up call. In the sense, that young investors are interested, but the problem is they don’t know how to go about investing. As such, we need to support them to make better and more informed investment decisions.

With big tech companies such as Apple, Amazon, Google which are miles in front when it comes to innovation and offering a seamless and intuitive experiences, the young consumers also want this when it comes to their investments and savings. We are slowly seeing this, but there is a big opportunity for investment houses, and life and pensions companies to jump on the bandwagon.

We are already starting to see this. With the recent IPO of PensionBee, the online pension provider and consolidator as well asset manager Vanguard launching a new low-cost retirement advice service that is catered to the mass market, there is appetite for more. These are just a couple of examples. There is a strong recognition that there’s a gap in the marketplace among younger savers that needs to be filled, as well as the need to simplify people’s pensions arrangements, and make savings and investing easier and more engaging for future generations.

I was pleased to hear the latest news about the pensions dashboard which is due to go live in 2023. The Department for Work and Pensions will also be launching a consultation on the pensions dashboards’ draft regulations which will be published in December.

It’s a long journey and it’s just the beginning, but we are definitely heading in the right direction.  I do believe that we must allow the younger generation to be empowered, to take ownership of their finances, in order to feel fully engaged.