Today’s millennials, or generation Y, are far poorer than the previous generation, generation X. In fresh evidence of the UK’s growing inter-generational divide, the Institute for Fiscal Studies found that a slump in home ownership and less generous pensions have left those born in the early 1980s with only half the wealth of those born a decade earlier by the same stage of their lives. It is little wonder then that today’s 20- and 30-somethings are finding it harder than ever to save. What can be done to help younger generations plan financially? We asked three advisers for their views...
Craig Hendry, Johnston Carmichael Wealth
Inverness-based Johnston Carmichael Wealth believes the foundations should be laid early and engages with local colleges and universities to provide advice on financial planning needs. Managing director Craig Hendry says: “When speaking to young students, I always advise they consider how they want retirement life to look and try to work from there back to the present day. “This will never be an exact science, but that doesn’t mean there shouldn’t be a plan in place. If they envisage a retirement of holidays and spoiling grandchildren, they can’t start preparing too soon.” Craig concedes that the long-term financial future for most 20- to 30-year-olds is, at best, uncertain. “Many will find that their lifestyle in later life will not be quite what they hoped for, especially without financial planning.” However, even small steps in early adult life can lead to greater strides in later life. “Auto-enrolment is a solid start, but it isn’t a magic bullet that will take care of your financial future; it’s not as simple as getting into a pension scheme and letting the systems in place take care of you,” says Craig. “Industry professionals should take a holistic approach to financial planning and offer easy to enter plans for all ages. That’s where we can help. “Planning for the future in your 20s could be as simple as starting a pension scheme, getting a Help to Buy ISA or thinking about alternative investments. These are advisable first steps, but investments must evolve with the financial situation.”
Noel Birchall, Lift-Financial
Prior to auto-enrolment, younger employees typically needed a nudge towards joining a pension scheme, often from parents, advisers or a benevolent employer. Auto-enrolment has taken over from this and low opt-out rates suggest it has been successful. Noel Birchall, head of corporate pensions at Lift-Financial in Cheshire, would like to see the industry build on this. “As minimum contributions step up in 2018 and 2019, good communication is needed to reinforce the benefits of long-term saving for those who have been auto-enrolled with a clear explanation of increases in costs and contributions. “A sudden and unexpected rise in employee pension deductions could lead to a spike in opt-outs.” Noel acknowledges that, for young people, getting on the housing ladder is likely to be a greater priority than pension contributions. “The introduction of the Lifetime ISA should provide a boost to saving amongst the young and promoting pensions and ISAs together as savings vehicles makes sense,” he says. “Getting the younger generation into the savings habit is key. Once established it needs to be reinforced with increased saving encouraged over the working lifetime. “Our industry has been poor at this over the years, with too much focus on new joiners and not enough on existing members.” He urges pension providers, advisers and employers to work together to boost member engagement over the longer term. This could be done through regular updates on investments and pension changes, prompts to review contribution rates and smartphone apps to make access to pension information easier.
Alistair Lauchlan, Verus Wealth
For Dundee-based Verus Wealth, education is the key to lifelong financial sense. “Parents, quite rightly, have much of the responsibility in this regard, but our education system is well placed to play a vital and positive role,” says financial planner Alistair Lauchlan. “Personal financial planning still does not form part of the mandatory schools’ curriculum in the UK. Likewise, our centres of further education don’t seem to take responsibility or initiative towards improving students’ money nous. “Little wonder then that so many young adults join the world of work with low levels of knowledge and often sometimes even less interest in matters of personal finance.” Advisers can do their bit by engaging as volunteers with PFEG, a charity that delivers financial education in schools. In the workplace, auto-enrolment will ensure that many more young adults are exposed to the concept of saving for retirement, but long-term engagement will largely depend upon the enthusiasm of sponsoring employers. Verus runs ‘pension on-boarding’ sessions for a large corporate client. “We try to make these informative, engaging, interactive, entertaining and enjoyable,” says Alistair. “The associated pension scheme has a 100% take-up and retention rate, I believe as a direct consequence.” The adviser also offers a free financial planning consultation to the adult offspring of its clients. “Our typical private client is older, but often has young adult children. While take-up of this isn’t huge, those who do engage with us for an hour or so always declare it to have been time well spent.”
||Average net wealth* in early 30s
Source: Institute for Fiscal Studies, September 2016; *includes housing, financial and private pension wealth