Millennials' lack of financial confidence could threaten AE

Research led by the Pensions and Lifetime Savings Association found that despite a narrower gender pay gap in younger generations, millennial women are less financially confident than their male counterparts.

We think in general that trustee boards are too male, too old and in general there’s a lack of different viewpoints sat around the trustee table

Graham Vidler, Pensions and Lifetime Savings Association

The report concluded that the demographic would be a key target for improved member communications and financial education.

Keeping AE opt-out rates down

Opt-out rates remain particularly low among younger generations, but policymakers and employers alike will be keen to ensure that they do not increase due to uplifts in the minimum contributions required by auto-enrolment.

The PLSA research, carried out by consultancy ComRes, found that millennial women were less confident on men across several financial indicators.

Despite being more likely to feel pressure to save for the future, female respondents were more likely to report facing increased bills, borrowing money in the last six months, and less likely to view savings goals like house-buying as attainable.

“They’re pretty realistic about their circumstances and it may well be that some millennial men have some false confidence,” said Graham Vidler, director of external affairs at the PLSA.

Nonetheless, he said steps should be taken to ensure that millennials’ lack of financial confidence will not prevent them taking further steps on the auto-enrolment journey, for example by increasing their contributions.

“In relation to pensions there’s an opportunity to address that lack of confidence through some really simple stuff around auto-enrolment,” he said, urging employers and others to help young savers build on the strong current take-up of auto-enrolment.

Awareness drive

Vidler envisaged an effective communication strategy as one which continues to emphasise the benefits of employer contributions and tax exemptions to employees' savings, and adopts a standardised terminology to discuss a wide variety of financial issues.

Financial education in the workplace would have to begin with government before being championed by employers and pension schemes, he said.

“Research tells us that people react very well to auto-enrolment partly because of the sense of, ‘We’re all in this together’, and the norming aspect is a very important thing.”

Kate Smith, head of pensions at provider Aegon, played down the idea that millennials are most at risk of undersaving, citing pleasingly low opt-out rates.

“We all need to do a lot more and it’s not just the younger generations,” she said, but added that empowering younger workers to value and negotiate to improve their benefit packages would be key to successful auto-enrolment policy.

“Financial education, particularly in the workplace, would be a really good idea,” she said.

Trustee diversity is crucial

For pension schemes in particular to be able to boost the financial confidence and literacy of younger and female members, a shake-up of trustee boards may be required.

“We think in general that trustee boards are too male, too old and in general there’s a lack of different viewpoints sat around the trustee table,” said Vidler.

While increasing the diversity of boards is a challenge, he did not think it would be impossible.

“There are plenty of examples from within our membership of how if you go about it in the right way and if you spell out for people the benefits for them and their pension schemes... you can actually get a very credible and serious selection process going,” he said.

The PLSA is currently considering how schemes with good engagement with different demographics can share their experiences and capabilities with each other.

Nonetheless, said Kevin LeGrand, president of the Pensions Management Institute, it may be hard to tempt youngsters into becoming trustees, “unless you see that as an individual as a way of actually educating yourself”.

Remaining confident about the behaviours shown by millennials in the face of unprecedented student debt and housing prices, he cautioned that while education around concepts like compound interest is vital, high-level engagement may be difficult for any demographic.

“We’ve been trying for a very long time to get people to engage, and with some good results, but not many. We haven’t been able to make a seismic shift,” he said.