Millennials are saving more than Generation X, but has the gig economy thrown a spanner in the works?
Apparently younger people are saving more than previous cohorts – a fact that might seem surprising, given the media doom and gloom about this generation.
But in spite of earning the least, 18-34 year olds put away the most: £400 per year more in non-pension savings than those aged 35-54, according to the latest findings from Close Brothers and the Pensions and Lifetime Savings Association.
Young people are also the main beneficiaries of the hugely successful automatic enrolment scheme.
A simple mantra applies – the earlier you start, the more you will save. And with the proportion of eligible 22-29 year olds with a private sector workplace pension increasing from 28 per cent to 80 per cent, this generation is set to do quite well.
In contrast, it is 35-54 year olds who have now been cited as the most financially concerning generation; they don’t have the time to save like the millennials, or lucrative defined-benefit pensions like the generations before them.
Millennials have been nudged into saving submission, most likely by the barrage of financial messages forecasting a catastrophic picture of impossible house deposits, stagnating wages, and skyrocketing student debt. At last, some good news.
But more can be done.
With the automatic enrolment review coming up, ministers are considering lowering the age of entry to the scheme, to help encourage millions of 18-21 year-olds to begin saving for retirement.
This is an excellent idea; good habits start early and bad habits are hard to crack. Young people are typically classed as “lazy” by the media, and although typecasting should be avoided, this sense of inertia can be used as a powerful tool.
Opt-out rates are low, because people are nudged towards the easiest option. The Pensions Policy Institute found that just seven per cent of those under 30 decided to opt out after being enrolled.
Lowering the qualifying age will be the most likely outcome of the government’s review. However, the elephant in the room is self-employment, particularly for young people.
There are now an estimated 1.1m people in Britain’s gig economy – nearly as many as work for NHS England. The RSA found that those aged 16-30 are particularly attracted to the idea of gig work, with one in four saying they would consider some form of it in future.
Auto-enrolment is currently not part of the self-employment package. Pensions are another form to fill in, on top of tax returns. More paperwork leads to worse pick-up, especially if you are 22 and retirement is merely a distant spec on your savings horizon.
This is why auto-enrolment should become compulsory for the self-employed labour market, as backed up by the recent Taylor Review.
It is clear that millennials are capable of saving for their near-to-medium term future. Now the government can take a positive step towards enabling them to save for their retirement too. Given the changing labour force landscape, auto-enrolment for gig workers is a crucial first step.