Why we need to better understand Generation AE

This generation’s engagement with pensions has been crucial to the legislation’s success to date. Their voices must now help to shape public policy and industry practices for the future.

But research into their attitudes, expectations and needs when it comes to retirement saving, and how the pensions industry can prepare itself to support them in future is still thin on the ground. That is why the Pensions and Lifetime Savings Association has created a research consortium to find out – in association with Nest, The People’s Pension, Legal & General, Now Pensions and RBS.

It is absolutely crucial we have a fuller understanding of this group of savers if we are to continue to ensure AE is a success in the long term

We presented early findings at our recent annual conference, and will deliver a full report in early 2019.

Young savers see bright future

Fifty-three percent of Generation AE is under 40. These younger savers are more optimistic about their future career paths and ability to accumulate money than older savers, who tend to be more accepting of their current situation.

Few in Generation AE have a detailed knowledge of pensions, although most are aware of the basics.

Although the majority are optimistic about retirement savings, they are concerned about the risks of investing and how future policy changes might affect their pension.

In fact, many in Generation AE say they prefer property ownership to pensions. It is seen an asset that can be easily bought, sold, rented and upgraded to improve its value – as well as being a home.

An generation of individuals

Regardless of age or income, most in Generation AE say it is up to the individual to provide for their own future and take responsibility for their finances.

There is little expectation the state will look after them, so it is not surprising that this group wants more support from advisers and employers to help them make informed decisions.

For AE to continue to be a success, contribution rates must increase. Our recent Hitting the Target report recommended they should increase to 12 per cent of earnings by the early 2020s.

We researched whether Generation AE would find this affordable. Our findings showed that the increase to 8 per cent of contributions, already planned for 2019, should be manageable. Respondents were less certain about a future rise to 12 per cent – although it was not rejected out-of-hand.

Phased increases worry savers less

Context is important here. Savers who are used to paying 5 per cent of their earnings might feel that 12 per cent is an unassailable leap.

However, as a next-step from 8 per cent it may start to feel less onerous. In addition, under the PLSA’s proposals, contributions would be split 50:50 between employer and employee, which would reduce the burden on the saver and make it more affordable.

We will explore Generation AE’s views on contribution rate increases and other aspects of pensions in more depth as our research develops.

It is absolutely crucial we have a fuller understanding of this group of savers if we are to continue to ensure AE is a success in the long term.

Nigel Peaple is director of policy and research at the Pensions and Lifetime Savings Association