Schemes should explore new ways of engaging with Generation Y to encourage them to achieve better retirement outcomes, writes Kim Kaveh
Despite automatic enrolment (AE) bringing over eight million into workplace pensions since 2012, more needs to be done to encourage millennials - the so-called 'lost generation' - to save more for retirement.
Millennials, also referred to as Generation Y, are those who were born from 1980 onwards, and reached adulthood around the turn of the 21st century.
It revealed that 51% of millennials were not being encouraged to save for their workplace pension by their employer, which highlights the need to take action.
Ascot Lloyd head of advice Jade Connolly agrees, and says the earlier people are engaged, the better the savings potential will be.
Speaking as a millennial herself, she adds: "Even a small amount each year from the age of 20, or even younger, makes a difference further down the line."
Therefore, schemes must face the challenge of finding new ways to achieve effective communication to encourage good savings behaviour.
The right communication
Royal London director of policy Steve Webb says a lot of the industry tends to "finger wag" and "tell the young generation off."
He suggests using better language that is enabling, supportive and not disapproving.
He comments: "If you use coffee as an example, where you see a young person with a posh coffee in their hand, telling them they're a terrible person for enjoying it and should put it in a pension is just not going to work."
Webb further points out that millennials should be given choices.
"Instead, schemes should say, ‘yes, you can have a coffee now, no problem, but consider your later life choices'," he adds.
Experts have further suggested using simpler language to communicate with millennials.
Redington co-founder Robert Gardner, who is a founder and trustee of financial education initiative RedSTART Educate, agrees. He suggests capping the length of letters and pension documents that are sent to members.
"I see most pensions documents are longer than Hamlet; they need to be much shorter," he adds.
He comments: "There should be a plain English campaign, much greater use of animations, YouTube cartoons and charts to engage, for example."
Previous research has suggested that by 2020 millennials will form around 50% of the global workforce.
Therefore, in an age where technology sets millennials apart from previous generations, adopting a digital first strategy to adhere to the needs of such a digitally literate workforce is key.
Connolly points out that when talking about millennials, schemes need to be "talking technology".
She says: "A poster put up in the work canteen is probably going to be wasted on a millennial.
"We need to talk in terms of various mobile phone apps, or any technology that encourages millennials to save."
Aegon's research found 23% of millennials were unaware of contributions being made by their employer to their pension, which shows there much room for improvement.
However, it also found 30% of millennials are choosing to invest in their own funds outside the default fund, which may be down to new digital tools available on the market.
It allows card payments to be rounded to the nearest pound, and then spare change is invested into one of three funds.
Getting nudges sent on millennials smartphones could also be an effective engagement tool.
Webb explains how it would work: "Members could get notifications saying, 'Happy birthday, put some more into your pension,' or if you change jobs, an app could notify the member saying, 'I've seen you've changed your job, this is a good time to review your pension'."
Webb also highlights the importance of the pensions dashboard, a platform that will let savers see all their pension pots in one place and help them to plan for their retirement more effectively.
"The pensions dashboard is a necessary thing," he says. "There does need to be one place where you can see everything. And once the dashboard data exists, lots of technology companies will come in with the ‘whizzy' front end graphics, colours and videos."
The government is aiming to make the dashboard available to members from 2019.
Clearly, schemes should ensure they are communicating in the right ways with millennials to encourage good savings behaviour. Although it is encouraging to see some are engaged with their pension investments, there is still room for improvement. Technology can play a very important part in getting Generation Y engaged, encouraged, and aware.
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