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Younger adults feel the most confident about their likely standard of living when they retire.
More than four in 10 (44%) people aged 18–28 (Gen Z) expect their standard of living to improve in retirement. This optimism is similar among Millennials (38%), those aged 29–44.
It is much lower, however, among older workers – according to our Retirement Voice 2024 report, which surveyed the views of more than 6,000 people in the UK from all walks of life.
Is this youthful confidence justified? After all, younger workers have benefitted from being automatically enrolled into a workplace pension, so in many cases have started saving for retirement much earlier than many older workers.
Or might it reflect overconfidence among some young people, which could cause them to under-save and under-prepare for their retirement?
Retirement income
Younger adults have very different expectations about where their retirement income will
come from.
Fewer than four in 10 (38%) Gen Zers expect to receive an income from the State Pension. Millennials aren’t much more optimistic (51%). This compares with 84% of Baby Boomers+ still in work.
On the other hand, younger adults are a lot more open to specialist, alternative investments.
For example, around one in ten Millennials and Gen Zers intend to use cryptocurrency for retirement income. Baby Boomers and Gen X, meanwhile, have practically no appetite for this.
This interest is much greater among young men. Around one in six (17%) Millennial men intend to use cryptocurrency for retirement income, compared with just 6% of Millennial women. There’s a similar difference between Gen Z men (13%) and women (4%).
A comparable gender difference, albeit less stark, is also seen with respect to investment bonds, stocks and shares and investment property, with young men more receptive to using these as retirement income.
Do these findings reflect differences in risk appetite, confidence or financial knowledge among young men and women, or a combination of these factors?
Information habits
A key risk to younger people is misinformation, arguably exacerbated by social media and the rise in artificial intelligence.
For all people of working age, the three most popular sources of information on retirement are: pension provider; Gov.uk; and family/friends/colleagues.
However, younger people claim to look at more sources of retirement information, including social media. In fact, this is Gen Z’s single most popular source, with roughly one-third (32%) using it to find information or help with their retirement planning.
A quarter of Millennials (25%) also use social media for these purposes by. It is much less popular, however, among older workers.
TikTok and LinkedIn are the two most popular social media sources for retirement information among Millennials and Gen Z. Facebook, Instagram and X/Twitter are close behind.
This greater use of social media may have potential benefits and risks.
While hearing other people’s financial experiences on TikTok and Instagram can be helpful and occasionally empowering, it increases the risk of young savers receiving misleading information.
It might also cause younger adults to increasingly compare their financial circumstances to other people – and make detrimental decisions as a consequence.
Indeed, research on US adults found that more than four in 10 Gen Zers and millennials experience “money dysmorphia”: a disconnect between their perceived financial status and their actual financial reality.
This condition – which, according to the same research, is much less common among older people – can lead to feelings of financial insecurity or inadequacy even when in a
stable position.
The flood of information of social media also risks overwhelming younger adults – causing decision fatigue and information overload.
This comes at a time when only one in four young adults report having received any financial education at school – 10 years since its introduction to the secondary school curriculum, according to research by Santander UK.
Cost of living legacy
Our research also found that younger adults appear to have been most affected by the cost of living crisis. More than half of Gen Zers (61%) and Millennials (56%) say their mental health has suffered as a result (compared with just 24% of Baby Boomers, and 43% of Gen X, respectively). Gen Z women have been singularly most affected.
These generations are also most likely to say they have a more cautious attitude towards their finances.
This cautious attitude might seem at odds with younger adults – especially men – being more receptive to cryptocurrency, and other specialist forms of investment, as potential sources of retirement income. Actually, this incongruence should not surprise us. But it is a concern.
As noted by Helen Dean, Chair of Standard Life’s Master Trust Board: “It’s not unusual for an expressed risk appetite that is very high to be paired with a low tolerance for risk when it crystalises. This was something identified in research completed by Opinion Leader in 2010 before the start of auto-enrolment, and it was noticeable among younger men.
at even if people were likely to choose high risk investments, when they experienced the reality of volatility, some of them were horrified, felt betrayed (“who stole my money?”) and indicated that they would be likely to stop saving and never want to start again.”
Role of the trustee
So what does this all mean for trustees, as they strive to ensure that they cater for all their members – including those under the age of 40?
We need to communicate better with younger people. This needs to be about the things they can control and which will make a difference. We also need to reach out to them where they are (including social media sites), in language they connect with.
There are lots of lessons to learn from bloggers and influencers; finfluencers are having a big impact. Trustees might wish to consider how we use the same tools and techniques to help people to help themselves to do the right thing.
Better information means more realistic information about what people’s pension pot will “buy” in terms of retirement income. The information that lots of people get is often overly focused on the size of their pension pot.
For a young, relatively low earner this can seem like a huge amount of money, but they may not fully appreciate the amount of money they would need to fund a typical retirement over many years. (Again – that overconfidence.) The Pension Dashboard tool could make a big difference here, if young people use it.
Of course, this all starts with continuously striving to understand younger adults’ financial sensibilities. But this doesn’t mean we should always follow them slavishly. Sometimes we might have to support and guide people based on what they need, not always what they want – or think they need – helping them understand their options and consequences of their financial decisions at a particular stage in their lives.