The Young Pragmatics and Penniless Generation Report reveals a retirement shortfall for employees in their twenties. This is due to a lack of opportunity to save, rather than a lack of will.
The Young, Pragmatic and Penniless Generation Report is based on the findings of the 2013 Aegon Retirement Readiness Survey. This survey has been measuring peoples attitudes and aspirations for their retirement since 2012. In total 10,800 employees took part across 12 countries. These included 2,722 between the ages of 20 and 29 years (i.e. not self employed, students, and homemakers) and 1,200 retirees.
Key findings
Working adults in their twenties expect to be worse off financially in retirement than their parents (59%), and take on more financial responsibility, including funding their own retirement.
Additionally, 37% believe that they will likely fall short of their retirement needs. Furthermore, 27% believe that their retirement shortfall will be large, at least half of what they estimate they will need in retirement. As a result, 44% are pessimistic that they will not be able to choose when to retire.
Another factor is the financial impact of caring for the older generation, with 28% expecting to provide financial support for retired parents, and 40% agreeing that 'adult children of retirees should help provide financial support for their parents if needed.'
A surprising and encouraging two-thirds of young employees are committed to or have the ambition to save for their retirement. A core 25% of young employees are habitual savers who 'always make sure' that they are saving for retirement, and a highly encouraging 41% of young employees are 'aspiring' savers who intend to save.
57% of young employees believe that retirement savings are important, but not a priority for them at the moment. Taken together, these findings suggest that many young employees are prepared to 'own' the retirement problem, having accepted the new reality, perhaps more readily than some older employees.
The survey reveals that 47% of younger employees do not know if they are on course to achieve their desired retirement income – a lack of insight into the future which may contribute to savings inertia.
However, 26% say that 'better and more frequent information about my retirement savings' would encourage them to save more for retirement. 23% cite 'access to a professional advisor with personal recommendations,' and 22% want 'financial education so I am more aware of what I need to do for myself.'
Tellingly, 24% see friends and family as the most important source of information in choosing how to save for retirement, which suggests that employers and professional financial services companies are either not providing appropriate support or are not providing support in a manner that is perceived to add value to these employees.
Today's young employees require flexible savings products, such as more portable retirement benefits and other workplace savings offerings, which move with them between employers and across different life stages.
Young employees' employment patterns are different to those of previous generations. The survey revealed that 39% are planning to look for a new job in the next 12 months, compared to 29% of all employees, and 31% of young employees are thinking about quitting their jobs.
Young employees also place a high value on occupational benefits, with 87% believing a workplace retirement plan with employer contributions would be an important factor when choosing their next job.
33% of young employees would be encouraged to save for retirement by matched retirement contributions from their employer. Again, clarity and insight are themes, with 24% stating that access to simpler investment products would increase their propensity to save.
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Recommendations for individuals
Young people accept the need to save for retirement, but don't know how to act on that need. They can become more retirement savvy simply by talking to friends and family (as do 24% of our respondents already) or employers, going online to use retirement calculators or reading the personal finance media.
Young people are faced with life events that make it easy to feel overwhelmed by financial priorities in addition to retirement planning. Soliciting advice from a finance professional early in life (17% of young employees have done so already) helps with planning and priorities, and making sense of long-term finances.
As with all employees, young people will strengthen their retirement readiness simply by saving regularly. Today, only 25% of young people always save, yet even small regular amounts will improve retirement readiness over time.
While one third (33%) of young people believe that a workplace retirement savings plan provides a major opportunity to start saving, employers often experience difficulties in engaging younger employees in discussions about retirement planning. The workplace is an important channel for achieving retirement readiness, so be sure to max out on any employer contributions.
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Recommendations for employees and governments
If an auto enrollment workplace retirement plan is feasible, this can play a major role in getting young workers saving early and regularly. Combined with auto escalation (the automatic annual increase in retirement plan contributions) and matching contributions, it can lead to greater retirement readiness.
Not all savings journeys start with a retirement plan, particularly for young people, who may think of retirement as 'too far away.' Employers can kick-start the savings habit in younger workers by providing flexible, easy to access and easy to understand savings plans as a more attractive starter option.
Young people move jobs much more often than previous generations of employees, so savings like DC retirement plans need to follow employees when they change jobs.
All countries encourage long-term savings through tax relief, but young people often aren't aware of this or don't understand it. A more targeted system of tax relief could help provide clearer and simpler signals to younger people about the financial benefits of long-term saving.
Young people who aspire to save may be prevented from doing so by setting the wrong financial priorities. Workplace retirement education – alongside professional advice – can help guide young people toward the right long-term priorities at an earlier age in life.
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