Scheme perspective: Engaging younger members

Responding to a report last week by the International Longevity Centre (ILC), which said younger people were more likely to save less and opt out when auto-enrolled, managers said flexibility was the key.

Schemes are focusing on getting younger members to start saving earlier as this will give them a better chance of achieving a higher pensions income in retirement.

At Ernst & Young, communications for new graduates and young hires differ from those used for more experienced hires.

Pensions manager Tim Carney said the approach, language and format were set out to appeal to younger members and employees.

“The focus of the booklet is geared towards starting to save and the compounding effect of pensions and so on,” he said.

The scheme seeks to exploit the technologically savvy by making all the information available online.

He added: “We don’t necessarily encourage people to pay more, we just want to give people access to information so they can make a choice.”

Richard Everitt, pensions manager at the Goldman Sachs plan, which already auto-enrols employees, said greater legislative flexibility in saving options for younger people would drive interest.

He said: “You would perhaps want the pension plan to be more flexible for people in their early ages so they could use the money to pay off their student loan at the outset

“Perhaps they’d be more engaged in the process if they could see it had distinct advantages.”

Prospective pension money could be used as a guarantee against property, for example.

But he added the scheme recognises younger employees would have other priorities, and was not “too worried” whether or not they chose to increase pension contributions.

He also revealed communications were being amended to include a user guide for the website, a projection modeller tool to understand the impact of PAYE and alternative voluntary contributions.

Demographics

To meet the national challenge to get younger people saving for retirement, the ILC report recommended:

1. Developing a savings rule of thumb akin to the five-a-day vegetable rule;

2. Further promotion of existing savings incentives; 

3. Using online services so managing pensions is as easy as online banking;

4. Developing a “plan B” in the event of young people opting out; 

5. Introducing compulsory choice between savings options; 

6. The government to consider a graduated state pension to reflect changing expectations around retirement.

The ILC report assessed various studies into the finances of under 34 year olds by the Department for Work and Pensions (DWP) and the Office of National Statistics, and found "generational features" were responsible for the lower levels of saving amongst the young.

It concluded: "Clearly, lower earnings are a barrier: lower-income groups across the age distribution are less likely to save, and likely to save less.

"Property prices during the housing market boom also meant that young people required more of their income for housing costs, preventing retirement saving."

Senior researcher Craig Berry stressed automatic enrolment should not rely on inertia, and in so doing contradict people having control over their finances.

He said: "That would seem to suggest not telling young people about pensions and having them save by default is the way forward.

“My evidence on young people suggests that is probably not the way to think about it.”

He agreed online communications and accessibility would be key in engaging this demographic, and the government should consider a “Plan B” of more liquid savings vehicles for younger people.