How can young members make an impact on their retirement funding?

Presented with unprecedented freedom and choice, there are certainly major benefits to be enjoyed by the young. Yet these benefits are highly unlikely to extend to defined benefit pension scheme membership – something that many of the older generation have been lucky to experience. 

Millennials might well take more interest in saving if they realise that it can be harnessed to do good in the world as well as being to their own financial advantage

Millennials, those born between the early 1980s and the early 2000s, are in an unenviable position when it comes to pensions. With the retirement age rising, life expectancy increasing and DB schemes dying out, the burden of saving for retirement has increased and shifted from employers to the individual.  

This paradigm shift brings with it a lot of responsibility. Auto-enrolment in company schemes as a default certainly helps, but not everyone has access to reasonable-size employer contributions.

How can we engage with millennials?

A multitude of avenues exist, from incorporating financial education in the curriculum, to reaching out through the use of technology, but the investment industry also has an important role to play.  

Socially responsible investing or investing according to environmental, social and governance concerns could be the key to engaging with younger people and encouraging them to invest for their retirement.

In 2016, Deloitte surveyed millennials across 29 countries and found that 87 per cent of the almost 8,000 surveyed believe that “the success of a business should be measured in terms of more than just its financial performance”. Clearly, millennials are interested in more than just profit margins.  

Take into account extra-financial concerns

Millennials might well take more interest in saving if they realise that it can be harnessed to do good in the world as well as being to their own financial advantage.

How many are aware of impact investing, for example – opportunities like microfinance for underserved parts of the global economy, such as female cottage industry entrepreneurs in the developing world; or green bonds, issued by household-name corporations directly to finance projects that aim to mitigate or help us adapt to the effects of climate change?

They may have heard about responsible investing, but if so they probably assume this is still about crude exclusions of 'sin' stocks from the tobacco, fossil fuel or arms sectors.

How many realise that the investment management industry has been developing sophisticated ways to measure, report on and even influence the positive social and environmental impact that some of the largest global companies have on the world around them?

We need to let young savers know that responsible investing is about more than avoiding the bad stuff or dabbling in investment niches that are worthy but exert limited real-world impact. That could help convince millennials to save more for their retirement with the confidence and comfort that their capital is really making a difference.

Kill two birds with one stone

What if the decision for the young person became, primarily, a choice between which projects and types of environmental or social initiatives they felt most connected to and wanted their investments to support?

Investments that make a difference and do so transparently could have real potential to truly engage millennials. And the increase in their pension pots would then be a happy coincidence.

Tammy McPherson is head of UK institutional business development at investment management company Lombard Odier