Penfold’s co-founder Chris Eastwood explains how young people can be enticed to start saving into a pension by using technology and offering a system that allows for stop-start savers.
Research from Unbiased has shown that nearly a quarter (24 per cent) of people aged 35 or under have no pension savings at all.
Retirement might seem far off, but it is important that young people do not underestimate the importance of saving into a pension as early as possible. The earlier people start saving, the easier it will be to build a decent pension pot and benefit from the compound interest that helps their savings to grow.
The pensions industry has continually struggled to engage under-thirties, and it is no surprise. Overly complicated industry jargon and outdated practices have created confusion and disinterest.
The modern world of work requires simple, flexible and accessible pensions that can be used no matter which direction life takes
However, with the right mix of tech-enabled tools, transparency and avoiding pension jargon, younger people can and do get excited about saving for the future.
At Penfold, we have made a concerted effort to appeal to younger savers, which has seen the number of customers aged 30 or under using our platform jump by 238 per cent. So what steps can the wider industry take to replicate this rise in interest?
Bringing pensions into the 21st century
Many pensions are still built around the old ‘job for life’ culture, but today’s worker changes job an average of 11 times over their lifetime. The modern world of work requires simple, flexible and accessible pensions that can be used no matter which direction life takes.
Putting customers at the heart of pensions and using technology and innovation will be key. Pensions should be transparent and easy to access if they are to appeal to younger generations.
In a world where Generation Z has got used to having everything at the click of a finger, it makes sense that pensions keep up. Savers want instant access so they can easily see where their money is, how much they have saved, and how to increase their savings to reach their retirement goals.
Providers should also offer savers greater flexibility, making it easier for people to contribute different amounts each month. This means pausing contributions if they have a particularly expensive month ahead, or contributing a larger lump sum when they can afford to.
It can be hard to budget for expenses week-by-week when you are young, let alone worry about what those outgoings might be over the next 50 years. Recognising that, for the under-thirties, pensions are competing with many other short and mid-term saving goals, including a deposit for a house or an Isa, is also vital.
A system that allows for stop-start savers and lump sum contributions signals that saving into a pension does not need to mean sacrificing a big chunk of their income every month, or falling behind on saving for other important things.
Education is key
One of the biggest hurdles stopping young people from saving is a lack of understanding about the benefits.
Providers offer very little support to employers, often leaving HR teams to become the in-house pensions experts and providing little education to employees about the value of saving into a pension.
A essential factor in convincing the under-thirties to save more comes down to the benefits of compound interest, or the idea of interest on interest.
Starting to save a regular amount from the age of 20 rather than 30 could double the size of an individual’s final pot. In other words, they have to save half as much each month for the rest of their life to get to the same end goal.
The fact that starting younger saves people in the long run is a huge incentive for the under-thirties, and we do everything we can to make sure they have grasped this concept.
For many, pensions are still seen as something of a big black box, but they can be a great tool for making an impact on the issues that matter the most to savers — for example, sustainable causes.
By investing money in companies around the world and in a variety of sectors, pension savers not only have the power to support funds that align with their values but also the chance to demand change from companies in which they invest, something that is likely to appeal to younger generations as issues such as climate change become increasingly important with this demographic.
At Penfold, we have found that a combination of getting younger savers engaged in their pension power while making it as easy to manage as their current account has been instrumental in engaging them with the concept of saving for the future.
Chris Eastwood is a co-founder of Penfold
