Automatic enrolment  

Adults need to feel grown-up before starting a pension

Adults need to feel grown-up before starting a pension

Young adults need to establish themselves before they feel ready to engage with pension saving, according to Pensions Policy Institute research.

In a report titled What limits workplace pension saving amongst threshold adults (aged 25-39 years), the institute investigated how workplace pension participation among young adults is limited by a defensive focus on establishing themselves in adulthood.

This 25-page report stated while more young adults are saving into workplace pensions thanks to the introduction of automatic enrolment, there are many who are saving at minimum levels of contribution. 

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The report stated this may not provide for an adequate retirement, even at the full levels of contribution being introduced in 2019 as income may not be a driver of engagement with workplace pension saving, but rather facilitates participation once an individual feels established enough to engage with it.

The report stated: "Home ownership is an important priority amongst threshold adults, not just in financial terms but also because it contributes to a feeling of social stability, which may support participation in pension saving.

"Major life events such as marriage and having children are markers of establishment, and these act as a foundation for participation in pension saving by providing a platform for thinking about and saving for the future."

There is also some concern that more threshold adults may consider stopping saving as minimum levels of contribution rise.

PHD candidate Hayley James, author of the research, said: "Young people in the threshold phase do not yet feel ready to engage with workplace pension saving, even if they might be able to afford to do so.

"This is due to a protective focus on becoming established as an adult, which is seen as an immediate and important priority.

"The process of becoming establishment is subjective, as individuals determine what it means for them. It often involves considerations of income, home-ownership and other major life events, which once achieved encourage individuals to engage with workplace pension saving.

"Threshold adults may need specific support to help them to prepare for their later life, taking into account the complex factors they face in becoming established as an adult, in order to ensure they can achieve adequacy in later life."

Keith Churchouse, director and chartered financial planner at Guildford-based Chapters Financial Limited, said: "Invariably, we are all living longer and, in my opinion, the need to save for retirement has never been greater.

"Pensions largely only need two things, money and time and the younger generation have more time available to accumulate benefits than others. However, they are usually cash poor and have other needs, such as housing and rent costs.

"Finding a financial balance is key, even at early ages, to try and save for later, whilst also establishing themselves. The advantage of auto-enrolment is that it imports a savings discipline at an early age and if they don’t like it they can opt-out, but usually this is not recommended. I understand the defensive focus, but think carefully before making an early decision."