With the country entering economic recession, the Chancellor’s Kickstart scheme will provide much needed support for some young people seeking jobs in what may otherwise be an impossible market. For those aged over 22, these jobs will also come with the benefit of pension contributions, as the minimum wage paid for 25 hours a week under the scheme will edge the recipient over the £10,000 qualifying earnings threshold under auto-enrolment legislation.
However, there is significant uncertainty as to whether auto-enrolment minimum contributions and a state pension are sufficient to fund a comfortable retirement. The question is, therefore, how to bridge the gap, and one answer may be to increase engagement.
The benefit of a healthy pension pot for young people is distant. For many, there are immediate spending demands which have to take precedence; for those who do have disposable income, saving for retirement does not provide the immediate gratification that many of us are used to in a culture where almost anything can be summoned at the touch of a button on our phones.
Increasing visibility and making savings easier to engage with could help bring pensions up to date with other money management and investment tools. Many apps and online platforms now offer more flexible, and dare we say more fun, ways of saving: setting savings goals with regular progress updates; analysing spending patterns to recommend saving amounts; and rounding up purchases to the nearest pound, and investing the spare change to name a few. They beat using the importance of pound cost averaging and the time value of money as incentives to engage and save, although such importance remains ever-present and has not diminished.
Enabling people to connect this kind of immediate access and interactive technology with their pension savings would make saving easier and more tangible. If savings goals, such as the retirement income targets recommended by the Pensions and Lifetime Savings Association (PLSA), could be integrated as an objective benchmark, and examples of retirement income available for particular pot values, this would increase understanding of what is needed to fund a comfortable retirement and what needs saving now to get there.
Making pension savings interactive could help bring to the forefront something which is not easy for young people, with many years until retirement and more immediately pressing priorities, many young people want to think about it later. The Chancellor’s Kickstart scheme will undoubtedly provide a boost to the retirement savings of those who qualify, but they will need more; generating in young people an interest in their pension savings and then giving them the tools to engage independently can only help.
Steven Hull is a partner and Rosamund Wood is a senior associate at Eversheds Sutherland.