In a week dominated by conversations about engagement and education around pensions, with the Investment Association and FCA both releasing reports on the topic, one group has been conspicuously left out of the discussions – millennials.
The UK regulator proposed a number of reforms to protect consumers’ pension pots on Thursday, like “wake-up” packs, but these were aimed at 50-year olds and people it classified in “the least engaged consumer bracket” between 55 to 64.
The IA’s recent publication Putting Investment at the Heart of DC Pensions did not contain any suggestions of how to better engage with the next generation of savers either. There is one reference to “millennials” in the report in the context of changing attitudes around non-financial objectives, like investing in companies that have an ethical and/or social impact.
At the IA’s annual policy conference held on the day its report was published, talk of engagement with millennials turned exclusionary.
While the discussions centred around the UK, the points raised are equally applicable to pension providers and millennials across the globe.
Why engage?
Royal London director of policy, and former pensions minister, Steve Webb took the most contrarian view during a panel debate, which included M&G Investments managing director and global head of distribution Jonathan Willcocks and chief executive of The Pensions Regulator Lesley Titcomb.
“Why do we need to engage with 25-year olds?” he asked. “Even if they did engage what would they do about it? What we need is people who are trained professionals who know what they’re doing acting on their behalf. I want kids to dream big, my daughter wants to be an actress for goodness sake, I don’t know want her thinking about her investment strategy or her pension.”
The IA panel was generally split on what stage pension providers should engage millennials and to what degree.
M&G’s Willcocks thought it was important to engage customers early on about investing in their retirement but argued that exposure to robo-advisers and online guidance would be sufficient in the first instance.
“You don’t know you need your hand held unless you engage in the first place,” Willcocks said.
“Robo-advice is a good thing, it opens up the access of financial advice at a cheaper level. By doing that, you engage in the process. As time evolves and the asset base grows or eventually you inherit it from the baby boomers, at least you know where to go.”
Jonathan Lipkin, director of public policy at the IA, agreed the industry needs to find a way to clearly communicate and educate savers on the pensions process but admitted it would be difficult to appeal to many young savers who are “preoccupied with other things”.
“It couldn’t be a conclusion of this panel that we shouldn’t be engaging with younger generations on investment,” said Lipkin. “It’s just not tenable. From our perspective, the engagement around helping people understand investing longer term, why it matters, what it means for the economy is important at all stages of life.”
Cash poor
But Webb argued that twenty-something and thirty-something individuals don’t have the disposable income to actively contribute to their pension pots, which is why providers should save their breath.
“It’s not a case of build it and they will come,” said Webb. “Build it and it will sit on the internet equivalent of a shelf.”
Webb said that all millennials need to do is adhere to the steps in the acronym SUM – “start as soon as you can, up your contribution when you get a pay rise, max out on what your employer will give you.”
Anna Lane, chief executive of the Wisdom Council, a firm specialising in financial services consumer engagement, says not all millennials are cash poor and unable to increase their contributions.
“Part of that perception comes from the fact that a lot of the industry is based in and around London and the south-east where disposable income is probably constrained by high rent and paying down student debt,” she explained.
“We talk to millennials outside of London who are already on the property ladder and in some cases are even saving toward holiday homes.”
Pensions industry missing out
Generally, Lane thinks the reason providers are less eager to engage with the younger generation is because they assume that they will be in a better position than baby boomers thanks to auto-enrolment.
“I can understand that a lot of pension providers have priorities around the generation that are coming up to retirement 55-age bracket where in many cases there are mixed provisions for retirement,” said Lane.
“But there are still millennials opting out of auto-enrolment. Reaching that cohort to ensure they stay enrolled is almost more important than trying to get them to increase contributions.”
Lane suggests that the pensions industry is missing a trick to get millennials more actively involved with their pension pots by bringing in value-based investing, making it a more personalised experience.
“Millennials are highly engaged by responsible and impact investing partly because there’s a story they can understand and get their heads around. To be able to align their pension pot or investing to those values and beliefs is quite powerful.”
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