Nearly a quarter (23%) of respondents aged 18 – 34 with a workplace pension didn’t know how much their employer was paying into their workplace pension. And over two fifths (41%) of millennials with workplace pensions said they were not aware that they get tax relief on their workplace pension contributions.
Kate Smith, head of pensions, Aegon comments: In simple terms tax relief on pension contributions is the government topping up an individual’s pension contribution, and it’s effectively a reward for saving. This worrying lack of understanding means that young savers in the workplace might be missing out on some of the benefits a workplace pension can offer if they opt-out or fail to maximise their employer’s pension contribution. Every year that passes in which this young generation doesn’t take advantage of the benefits of tax relief or employer contributions is a year of potential free money and investment growth lost.”
“In addition to tax relief and employers’ contributions, the effect of compounding means savvy millennials have the edge in accumulating wealth for later life, and the earlier they start the better. For instance, a 22 year old benefiting from a £50 monthly contribution, increasing by 3% a year to reflect assumed earnings growth and investment returns after charges of 4.25%, could create a pot of around £118,000 by age 65. If however, that individual delayed and started saving £50 a month from age 30, that pot would only reach around £72,000. This means additional funds of around £46,000 in exchange for starting to save eight years earlier.”
Millennials seek support with retirement planning
The survey also found that millennials are looking to their employers for help with their retirement planning.
Just over half (51%) of millennials with a workplace pension said that their employer does not actively encourage them to check their workplace pension and the majority (58%) think it’s their employer’s responsibility to help them plan their retirement.
Kate Smith continues: “As the main route for employees to save for retirement, the workplace is the perfect place to encourage employees to engage with pensions. And the results of our research show that this would be warmly welcomed and needed by most. We’d like to see more employers encouraging their younger employees to get into the habit of saving through their workplace pension.
“While auto-enrolment gets people out of the starting blocks, it’s only a small part of the solution to saving for retirement. Employees should be encouraged to build on this to take an active role to grow their retirement savings.
Millennials are more likely to pick their own investment funds
Nearly three quarters (72%) of people with workplace pensions have chosen to invest their pension contributions in the scheme’s default fund. However, of all the generations, millennials were the most likely to have picked their own investment funds (30%). Compared to only 20% of 35 – 44 year olds, 15% of 45 – 54 year olds and 23% of 55 – 64 year olds picking their own investment funds over the scheme default option.
Kate Smith continues: “Choosing their own investment funds is a promising sign that the younger generation are open to taking responsibility for their retirement planning and making active decisions. It also suggests young people are taking a greater interest in what their savings are invested in, and there’s evidence to suggest they are more likely to opt for socially responsible investment strategies. The onset of pension digitization also makes it easier to switch between funds which is likely to appeal to a more tech savvy generation. We hope this trend towards increased investment engagement continues for generations to come.”
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