Are young people heading towards a pension crisis?

Research shows an alarming number of young people aren’t saving enough, or anything, for retirement. So what can be done to change this?


The younger generation of workers face a torrid financial future. Pre-pandemic, many struggled to buy their own home or save regularly. Post-pandemic, that may prove even more difficult. Rising unemployment, a drastically different working environment and tax increases to pay for government furlough and business support will all plague their pockets for years to come. 

And with the state pension starting age expected to rise even further, perhaps even to 75, it appears worrying that research by Royal London found two in five millennials aged 18 to 34 had stopped or reduced their pension contributions following coronavirus. A survey for Unbiased.co.uk also reported 24 per cent of under 35s said they had no pension savings at all. 

The government’s workplace auto-enrolment scheme has gone some way to heading off a crisis, but it fails to take into account the many young people in casual or insecure gig economy roles or the self-employed. Encouraging them to fund a self-invested personal pension, or SIPP, can be tough when money is tight and retirement seems like a distant dream.

Matthew Arends, head of UK retirement policy at Aon, says: “At times of pressure, it is natural to focus on the short term over the long term. The issue with auto-enrolment is it doesn’t apply to the self-employed, for whom there are no minimum savings requirements, nor for the unemployed. The under-employed will tend to under-save too, despite auto-enrolment. 

“Although it is easy to talk about mandating increases to minimum contribution levels, the reality is if individuals are paid less or work less, it won’t translate into higher savings levels.”

Some suggest ways to change this. For example, Jon Greer, head of retirement policy at Quilter, raises the idea of allowing employer-only contributions for auto-enrolment, which could benefit younger people on lower salaries and with less disposable income. 

And Mark Pemberthy, head of defined contribution and wealth at Buck, believes reducing the auto-enrolment age to 18 and removing the lower threshold of earnings that isn’t pensionable would “make a big impact to the amount of money saved by this generation”.

Changing pension habits with a nudge

Behavioural science is also being used. Last September, the Behavioural Insights Team and Scottish Widows found, in a UK study of 3,000 22 to 29 year olds, that a number of so-called “nudges” could boost younger people’s retirement funds.

It pointed to using the word “invest” over “save” while also explaining the benefits more. “By including tangible explanations such as ‘a 12 per cent contribution would keep you above the poverty line’ and ‘a 15 per cent contribution would allow for a comfortable retirement’, twice as many young people would recommend almost doubling pension contributions from the default minimum of 8 to 15 per cent,” the study says. 

However, it also discovered that before the pandemic, 49 per cent of that age group were not saving adequately for retirement.

One who is, however, is Lewis Harding, a 22-year-old accountant in training. Aiming to retire by 55, he uses Freetrade to manage his funds, but highlights a growing problem for his peers, the move from a job for life to more portfolio careers. 

“Auto-enrolment fixed one issue, but young people are more likely to move around jobs, especially in their 20s,” he explains. “I’ve found it stressful to keep track of pension pots you can collect along the way. If I forget about one, it might mean valuable savings are slowly eroded away. 

“The difficulties with consolidating and transferring pensions can put many people off and this effectively eliminates the benefit of starting investing early to give yourself as much time as possible to grow your savings.

“When joining a company scheme, if employees were given a default option to have employer contributions either go there or to a pre-existing SIPP, this would go a long way towards simplifying the pensions savings process in my view.

“Rather than seeing statements with each new employer looking paltry and uninspiring, a default contributions option could help drive home the power of regular savings and compound interest.”

Let young people invest in their priorities

Another idea to prevent a pensions crisis among the young comes from Ben Pollard, founder of Cushon, which recently announced the launch of the “world’s first” net-zero pension. 

“If we want the younger generation to engage more with pensions, we need to give them something they want and can really get on board with. Green investing and protecting the planet is something they feel very strongly about and 62 per cent of under-35s told us they would engage more with their pension if they knew it was making a positive impact on climate change,” he says. 

It’s not all doom and gloom however. Research for digital wealth manager Moneyfarm found 50 per cent of 18 to 34 year olds with a SIPP invested more or opened a new account during lockdown. A quarter were more likely to set early retirement as a financial goal following the pandemic. 

Similarly, Pollard saw a 50 per cent increase in those under 24 saving in a pension compared to before the pandemic, with 83 per cent of under-35s and 92 per cent of under-30s choosing its highest risk fund compared with 66 per cent who are 35 plus.

According to digital investment service Wealthify, 30 per cent of its SIPP customers are under 35, with many in typical self-employed or gig jobs, such as electricians, bricklayers, gardeners and musicians.

David Brooks, technical director at Broadstone, concludes: “Although current circumstances are difficult, young people should not lose heart. There are advantages to saving early in a pension, but pensions are not everything. If a pension feels like something that is locking money away for too long, younger people should consider a lifetime ISA. The old adage is true though: if you can afford it, the smallest amount is better than nothing.”