Forget freedom, millennials want security
From the blog: Born between 1980 and 2000 and entering the workplace amid one of the most significant booms and busts of recent history, millennials face a unique set of financial challenges.
In contrast to their parents which were the products of the post-war baby boom, millennials are crippled by mounting student debt, house prices at 8.8 times their average annual wage and the disappearance of gold-plated defined benefit pension schemes.
Within 10 years it is this group that will make up 75 per cent of the global workforce. Bearing this in mind, it’s clear that the pensions industry has got to think about how best to engage with the needs of millennials.
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The Association of British Insurers recently reported that annuity sales had, for the first time in more than three years, seen their first quarter-on-quarter increase.
While the figures show those at retirement shifting back to the security offered by annuities following an initial dip that coincided with the introduction of the chancellor’s reforms, the tale among millennials is different.
Millennials opt for secure returns
Millennials have consistently favoured guaranteed retirement options. When we looked at the quarter following on from the introduction of pension freedoms, we found that two-fifths (41 per cent) of those in their twenties and just under half (47 per cent) of those in their thirties preferred guaranteed income solutions. This was compared with just a fifth (22 per cent) of those in their sixties.
The younger generation’s preference for a guaranteed income in retirement continued in the following quarter, with well over half (55 per cent) of twentysomethings choosing guaranteed incomes, compared with just three in 10 (29 per cent) of those in their sixties.
Given the economic turmoil in which millennials entered the workforce, is it really surprising they are shifting from a focus on upping returns on capital to a focus on simply a return of capital?
Millennials will have to rely on defined contribution schemes, which for the industry is a marked shift from a more split DB/DC environment.
Providers will need to respond with new products to engage millennials early on. They also need to take into account the fact that the younger generations are more likely to switch jobs and will need to be able to consolidate and move their pension pots throughout their working lives.
Andrew Storey is technical sales director at financial forecaster eValue