Opinion: Younger people must be encouraged to save
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Nature determines that inter-generational attitudes and thought are in an almost constant state of imbalance. Formerly open-minded older folks gradually become set in their ways just as a younger, more altruistic cohort start challenging their parents’ well-established certainties and beliefs.
This dynamic process is part of growing up (as well as growing old), but it’s fair to say that in many areas, the imbalance has probably never been as pronounced as it is today.
Squeezed between a generation which suffered the horrors of war, genuine poverty, the prolonged dreariness of rationing and a painfully-slow post-war reconstruction, and today’s tech-savvy, ethically-inclined, social media-loving Millennials, came the lucky generation: the Baby Boomers (BBs).
To say most BBs have enjoyed the fruits of a remarkably lengthy period of sustained economic growth, the foundations for which were laid by their parents, and which, in turn, delivered better health, a cleaner environment and unprecedented access to higher education, among other things, is an understatement of monumental proportions.
This good-life-on-a-plate has, for many BBs (of which I am one), now extended into retirement where, following a career likely to have encompassed only a handful of different jobs, a well-established, though unwritten, employer-employee covenant ensures they can continue to enjoy life courtesy of a defined benefit pension.
Boomers benefited from post-war certainties derived from an unprecedented period of economic growth, but they may be the last generation to both enjoy and understand the longer-term implications of having a ‘job for life’.
In return for 40-odd years’ of work sans regular career breaks, backpacking in their forties, generous holiday allowances and dress-down Fridays came a handsome reward: a guaranteed pension which funds later life backpacking, frequent holidays and a host of other good stuff besides.
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By contrast, it would appear Millennials have accepted that they will never enjoy a similarly well-funded ride into their autumn years. According to a YouGov report, 44% of 18–34 year-olds have made no pension provision whatsoever.
This alarmingly high percentage is accounted for by what economists identify as the disappearance of career-long, reciprocal loyalty that once bound employer and employee.
The Deloitte Millennial Survey, a study based upon responses from more than 10,000 people, reported that, given the choice, 43% would leave their current job within two years. Fewer than 30% intended staying in their present position beyond five years.
The implications for longer-term pension savings are obvious.
Granted, younger people have always had a different, and understandably less worldly, outlook to their parents, usually until they too get married, have children, a mortgage and a long list of additional financial obligations. This would appear to still be the case; Deloitte reported that Millennials believe employers should “Share the wealth, provide good jobs and enhance workers’ lives,” a list that could have been written by any high-minded sixth former.
Yet if, or possibly because, warts-and-all ‘jobs for life’ certainties are a thing of the past, Millennials’ financial priorities appear markedly different to those of their parents. YouGov reported that only slightly more than a fifth (21%) who do save prioritised saving for retirement, significantly below almost one third (32%) who preferred saving for a holiday.
This clear inter-generational difference has been compounded by a comparatively rapid change in corporate attitudes which have compromised the unwritten employer-employee covenant.
The massive structural changes which took place in the 1980s and 90s were accompanied by a new corporate vocabulary; loyalty was cast aside in favour of relocating, downsizing and offshoring. Automation, AI and the growth of a so-called ‘gig economy’ further undermines the covenant. On top of this, defined contribution pensions have all-but replaced defined benefit schemes, effectively minimising corporate pension risk and transferring it to employees.
There is an argument which says that when Millennials consider the value of their parents’ house, their desire to save into a pension automatically becomes less pressing. This may well be true, although as equity release products become mainstream, the wealth older people have in their homes will become increasingly accessible, providing additional opportunities for silver-haired backpackers.
Given that such a large percentage of Millennials have made no pension provision whatsoever, it’s imperative that they’re encouraged to do so. But the process must go beyond the initial stages marked by enthusiasm, signing documents and investing a modest sum.
Educating the Millennial generation to ensure they understand the benefits of longer-term saving is essential, as is the need for the investment industry to develop products and funds likely to appeal to a younger cohort. Fund managers find that Millennials who do save allocate around 40% of their portfolios to sustainable investments.
In many respects, Millennials may not feel as lucky as BBs (they’re probably not), but this is, unfortunately, no excuse for failing to save.