Recent research has shown that millennials are welcoming auto-enrolment, prompting industry figures to highlight the positive role of employer contributions and the continued need for improved understanding of retirement saving.
Seventy-five per cent of millennials who have a pension say that they would increase their pension payments automatically in line with a pay rise, with 71 per cent deciding not to opt out after being enrolled, and a further 8 per cent saying that they opted out but then went back in.
While behaviour does not always match intention, this is a promising finding
Daniela Silcock, the Pensions Policy Institute
The research, published by Royal London and conducted in June this year, was based on online interviews of 1,500 respondents aged 25-34.
The effect of employer contributions
In addition, millennials were asked if they would stay in their workplace pension if their contributions increased automatically.
If total contributions increased to 5 per cent, with a 3 per cent contribution from their employer and a 2 per cent contribution from them, nearly three quarters said they would continue to save in their pension.
If the contributions were increased to 8 per cent, but were matched with 4 per cent from the employer and 4 per cent from the employee, an even larger proportion of savers said they would keep saving.
However, if total contributions increased to 8 per cent, with the employee paying 5 per cent and the employer 3 per cent, then those prepared to continue to save dropped to nearly two thirds.
Kevin LeGrand, council member and former president of the Pensions Management Institute, said that part of the reason could be that some people simply would not wish their contributions to rise from 4 per cent to 5 per cent.
But he also suggested that savers were shying away because their employer is not matching their contributions.
This is “a worrying attitude”, and ceasing to save completely unless an employer contributes a certain amount “is cutting off your nose to spite your face”, LeGrand said.
“There clearly needs to be much better understanding out there amongst these individuals,” he added.
Kate Smith, head of pensions at provider Aegon, also said that this finding in particular “really jumps out” at her, as it draws attention to the power and influence of employers and employer contributions.
Promising findings, but progress still needed
The research included a case study, in which a millennial explained how she opted out of her first job’s pension scheme, and initially opted out when she started a new job.
However, she then chose to opt in when she had a pay rise, and is taking advantage of the option to increase contributions in line with her salary, seeing employer contributions as “free money”.
Generally, the findings are positive, as millennials seem “to realise that it’s free money and a good investment for the future”, Smith said.
Nevertheless, it is still crucial to improve everyone’s understanding and awareness of “what is adequate, what they should be saving for [and] why they’re saving”.
Daniela Silcock, head of policy research at the Pensions Policy Institute, noted how the survey implies that many millennials do not intend to opt out once minimum contribution levels rise.
Should young people focus on pension saving?
Technology, greater understanding of the benefits of employer contributions and giving people more control over investments, are all ways in which younger generations can be encouraged to start saving for retirement, explains Jon Dadswell at Columbia Threadneedle.
“While behaviour does not always match intention, this is a promising finding,” she said.
However, Silcock drew attention to the fact that there are still a number of fundamental issues with auto-enrolment, which are being explored by the current government review.
These include how auto-enrolment can be extended to the self-employed, and how people can be helped to calculate and save at the levels they might need for a comfortable retirement.
“Positive attitudes towards… saving more among those who have been automatically enrolled are a hopeful sign that there will be some support for future developments,” Silcock said.
Andy Tarrant, head of policy and government relations at the People’s Pension, said it is “good news that millennials are intending to stay engaged with automatic enrolment… It should be a no-brainer to save in a scheme where your money is already doubled by contributions from your employer and the government even before any investment gains have been made”.
