In Newton Investment Management's latest DC column, Curt Custard looks at how to increase multigenerational engagement with pensions
As we try to encourage people to save for their retirement, we need to do something radical: address their specific concerns. Defined contribution (DC) members are not a homogenous group, and their attitudes and definitions of risk are likely to be related to the environment in which they grew up. Let's contrast the two biggest potential demographic cohorts: baby boomers and millennials. A typical baby boomer growing up in post-war Britain and starting work in the 1970s will have experienced base interest rates as high as 17% and inflation above 10%, and had a life expectancy at birth of 65-72 years. Many had jobs for life and could afford a house.
In contrast, a millennial born in 1996 who entered the workforce in the mid-2010s has only experienced the relatively benign conditions of low interest rates and stable inflation, has seen substantial improvements in technology, and can expect to live to 80 and beyond. Finding a job may be easier today than 40 years ago, but in the gig economy a job for life is a thing of the distant past. And buying a house is likely to be far harder as property-price growth has drastically outstripped wage growth over recent decades1.
Given the dramatic contrast in life experience, it is unsurprising that these cohorts view retirement differently. With the average UK millennial having £32-50,000 worth of debt (much of it from student loans) and needing to save for 19 years for a home deposit2, a DC retirement plan is unlikely to be at the forefront of their mind. Baby boomers, meanwhile, have concerns of their own, primarily linked to running out of money during retirement and being unable to afford healthcare costs.
There are a host of possibilities to improve engagement, which could include creating flexible DC structures so that younger members can prioritise more immediate financial goals, and incorporating baby boomers' health-related costs into short- and longer-term retirement objectives and target outcomes. But is there an area that DC schemes and asset managers can address today that would increase engagement across both cohorts?
One area that garners broad agreement among DC members is investing in companies that implement programmes to improve the global environment. Such an approach is supported by 85% of millennials, but baby boomers are not far behind, with 72% attaching importance to such considerations3. This suggests that integrating responsible investment and raising awareness of environmental, social and governance considerations are near-term and targeted opportunities to engage with broader DC audiences.
In this context, DC schemes and asset managers should address members' concerns by reporting on investments in terms of gender diversity, carbon intensity, waste management and corporate governance. It's time to report on what actually matters to members.
Curt Custard is chief investment officer at Newton Investment
1 Source: Bank of England
2 Source: UK student loan data - House of Commons Library, Briefing Paper: Student Loan Statistics (2019)
3 Source: The Conference Board® Global Consumer Confidence Survey, conducted in collaboration with Nielsen Q2 2017
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