Need to know:
- The government’s Kickstart scheme will pay 100% of the wages of employees aged 16 to 24, with those over the age of 22 being automatically enrolled into a workplace pension scheme.
- This scheme could be the first opportunity for younger employees to contribute into pension savings.
- Employers have the opportunity to educate younger employees about these savings to increase their knowledge of pensions.
The Kickstart scheme, announced by the government in July, offers to pay 100% of the wages of employees aged 16-24 if an organisation chooses to hire them on a six-month job placement. The government will also fund contributions for eligible employees on this scheme who are automatically enrolled onto a workplace pension scheme.
This scheme could encourage many young people to begin new careers. However, Royal London’s Pension pressure study, published in August 2020, found that two-fifths (40%) of employees aged 18-34 have either stopped (12%) or reduced (28%) their pension savings during the Covid-19 (Coronavirus) pandemic. Could the new Kickstart scheme encourage more young people to start saving into their pensions?
Pensions engagement among younger employees
Due to the Coronavirus pandemic, many employees, regardless of age, have been struggling with their finances. However, the younger generation of employees has been the most heavily affected in recent months and many have, therefore, pushed pensions further down their list of priorities, says Steve Cameron, pensions director at Aegon.
“Before the pandemic even began, younger staff weren’t engaged with pensions as much as [older] employees,” he says. “We are now in a time where people are finding it difficult to live from paycheque to paycheque.”
Although employees over the age of 22 that are brought onto the Kickstart scheme will be eligible to be auto-enrolled into a workplace pension scheme, younger employees may not instantly prioritise pension saving, says Cameron. Instead, they may only begin to realise the benefits of prioritising pensions in the coming years as a result of being brought into a pension scheme early in their career.
“Employees may realise that they could savings available a few years down the line and will then start to care about this more in their own time,” adds Cameron.
According to the Office for National Statistics research, early indicator estimates from the Wealth and assets survey: pensions, published in August 2020, found that one-third (33%) of employees aged 22 – 24 are unaware of auto-enrolment, compared to 19% of the broader population who are unaware of this. “Anything employers can do to show how important pensions are, and the benefit of engaging with it early will be beneficial for these employees,” says Cameron.
Financial education can encourage younger employees to invest in pension savings sooner, says Phil Anthony, pensions management consultant at Pensions Management Institute (PMI). “Advising employees to look forward to their retirement by offering financial education options is crucial because there are so many traps that employees can fall into later in their lives,” he explains. “For an employee who is younger, things could be drastically changing around them, so the education side through webinars and seminars can be beneficial.”
Impact of Kickstart scheme
The Kickstart scheme provides an interesting opportunity for younger employees to start saving, as the employer’s pension costs will be funded by the government. Tim Perkins, co-founder at Nudge, says: “The scheme will be an interesting opportunity due to these younger people being swept up by auto-enrolment; we know that very few people opt-out of this. Over a 20-year timeline, they may start to appreciate it even if they don’t when [they] are just beginning their careers.
“It may encourage young people to start saving into their pensions, but it is important for employers to do more in ensuring that employees are actively becoming engaged in pensions, to understand the bigger picture over many years.”
Cameron adds: “The fact that pensions auto-enrolment was included is a big positive. I suspect that the eligible employees aged 20 and above would receive their very first pensions savings. It may not be the most outstanding thing on [an employee’s] list when they start, but this could be a step in the right direction that younger employees may need to take to realise the true value of pensions after a few months.”
Although the Kickstart scheme may not encourage all younger people to save into a pension, it will initiate pensions savings for many, which may open up the opportunity to come back to it or continue later in their careers.
Encourage pension saving
In addition to the Kickstart scheme, there are numerous ways in which employers can improve younger employees’ attitudes to pensions.
Organisations could offer different pensions education depending on the age group, however, methods of doing so may need to be adapted to suit the current remote working world many staff are in, says David Pugh, managing partner at Lemonade Reward.
Offering more premium advice and content on pensions can give employees a reason to delve further into pensions education.
“Employers can offer these younger joiners accessible ways of understanding pensions more,” explains Pugh. “Having set plans linked to their financial goals, with the assistance of financial education could really help younger employees to understand their pension savings and why it’s important to start as early as possible.”
For example, Aegon offers pensions advice to its own employees, including a bitesize video series for all ages, as well as webinars. “Although the Kickstart scheme may not fully encourage that age group to start saving, it can be the start in the right direction,” says Cameron.
Offering personalised animated video summaries on pensions education can help to encourage younger employees entering the workforce to take an additional step towards knowing more about retirement savings and the options that are open to them.
For younger employees entering a workplace pensions for the first time, the Kickstarter scheme provides an opportunity to make their first contributions. It is then an employer’s role to help younger employees understand the importance of pensions and what contribution levels are most appropriate for their circumstances.