How can we get the 'squeezed middle' saving more for retirement?

A recently published Aon survey of more than 1,000 full-time employees with access to defined contribution plans through their employer, revealed that people in the middle of their careers are the most likely to struggle when it comes to saving enough for retirement.

They’ve got a lot of other outgoings, mortgage payments, children’s’ payments, looking after parents as well, so they’ve got a lot of calls on their income

Kate Smith, Aegon

The number of financial challenges, including debt, remains a problem for many, but it is those aged between 35 and 49 years old who are finding it most difficult to save.

The research found that around a third of people in this group think they could not come up with £1,000 in an emergency.

People mid-career struggle to save

Often known as the ‘sandwich generation’ – due to the responsibilities of caring for ageing parents while bringing up their own children – those in the middle of their career frequently come up against several financial challenges.  

Aon’s research showed the squeezed middle felt they were least likely to ‘get by’ financially for at least three months without income, compared with other segments of the workforce.

The consultancy said this is most likely due to the greater number of financial commitments they face, such as paying for childcare and mortgages.

Kate Smith, head of pensions at Aegon, agreed that “they’ve got a lot of other outgoings, mortgage payments, children’s’ payments, looking after parents as well… so they’ve got a lot of calls on their income”, she said, adding that “it’s hard to do it all”.

Darren Laverty, partner at Secondsight agreed: “It’s the most expensive period of your entire life.”

Cash flow forecasts

What can be done to get this age group saving more – despite all the extra financial challenges they face?

Laverty noted that it is important to engage people as early as possible. “You need to grab their attention,” he said.

Based on his experience with people in the mid-career age group, “they can all do more if it’s important enough”.

“One thing that we’ve now done several thousand times and has made a significant difference is to actually cash flow-forecast people’s future,” Laverty suggested.

This involves taking basic data from people, discussing their objectives and putting together an idea of their financial future based on their assets and savings – giving them an idea of how much more they need to live comfortably in retirement.

“When they can see the future… and it’s not as good as they’d like it to be, the pain of not saving outweighs the pain of saving,” he said.

Aon’s survey urged employers and trustees to consider whether people need more support early in their career to help them be realistic “from the word go”.

Regular comms crucial

Jon Parker, director of DC and financial well-being consulting at Redington, said: “Communication and engagement on a regular basis are the main things that employers need to do.”

He also highlighted how mid-life MOTs, rolled out through employers, could help. Financial health checks have been championed as a way of helping consumers to understand and review their financial affairs.

In October, pensions and financial inclusion minister Guy Opperman stated his support for mid-life MOTs, and several providers have developed and tested how the concept could be delivered in practice.

Aon’s survey asked employees how they would like to be communicated with about their retirement savings. The most popular method was email, followed by post and then face-to-face meetings.

Using text and social media, on the other hand, were not popular methods of receiving pensions communications.

Nick McClelland, sales and commercial director at JLT Employee Benefits, said that over the last few years, the amount of face-to-face communication provided by employers has “dried up considerably” due to cost.

This has caused the confidence of those aged between 35-49 to dip in terms of saving for retirement, because many of them may otherwise have had more access to one-to-one or face-to-face communications earlier on in their career, according to McClelland.

“They key, ultimately, is finding a way to communicate to that group that is affordable and scalable for any organisation, and that’s the challenge everybody faces today,” he said.

Employers must invest in their staff

Aegon’s Smith emphasised the importance of financial education, noting that there is a lot of work to be done to help people understand how much they need to save for a comfortable retirement.

“It’s a very harsh reality that people will need to save an awful lot more through pensions and other assets, ISAs, other savings vehicles,” if they want to retire aged 65.

Smith said employers need to talk about and promote pensions. “Employers need to invest in their employees and talk about financial wellbeing – and pensions is just part of that.”

This is something that employees do seem to want, with 66 per cent of all respondents to the Aon survey saying they would like some form of help to improve their financial situation.

A report produced by Aegon and the Centre for Economics and Business Research earlier this year showed that poor financial wellbeing is costing UK businesses £1.6bn each year.

The survey showed that respondents worry more about money at work than family problems and health issues.

Laverty said: "There’s an inextricable link there between [having financial certainty about the future] and mental health."

Many causes of mental health problems are money related, Laverty noted, adding that helping employees with financial issues can help.