Millennials have a “worrying lack” of awareness as to how pensions work, according to a new survey from Invesco.
The company found the majority of those aged between 24 and 34 did not know what happens to pension savings, with over half (54 per cent) believing it is deposited in savings accounts and earning a fixed amount of interest.
The majority of these are now actively savings into workplace pensions, via auto-enrolment, so Invesco says there is a clear need for those running these schemes to improve both communications and engagement
Older pension savers appear to be more clued up on how pensions operate – although there are still worrying gaps in their knowledge.Three out of four of those aged 35 to 64 stated that money invested in pensions is used to purchase various types of investments.
Those closer to retirement also tended to view a pension as a source of income (69 per cent) while millennials were more likely to see their pension as retirement savings (49 per cent).
Regardless of age, those surveyed for this report – titled ReDefined Contribution Schemes – were equally concerned that their finances will not be sufficient for retirement.
Almost a quarter (24 per cent) of both groups said that they were “not at all confident” they will have the amount needed to retire. Also troubling was the fact that 25 per cent of those asked were not sure how much they would even need for retirement.
When looking into how to make scheme members contribute more into their pension, the majority of respondents were motivated by positive sentiments, such as maintaining or improving their quality of life, as opposed to negative appeals to fear or guilt over current “shortfalls”.
The survey found that DC scheme members want to understand more about their pension options – and the study shows respondents prefer direct and honest language in communications about their pensions.
Employees want schemes to present facts without jargon. This was especially true of younger scheme members, of whom 47 per cent said they prefer to hear that their money was ‘growing’ rather than the 5 per cent who preferred ‘compounding’.
Invesco UK institutional sales director Stephen Messenger says: “There is a significant communication challenge for the UK’s pension industry, especially around improving engagement with the younger generation.
“Since auto-enrolment has come into force, the need to improve education has never been more important. This is reinforced by the fact that the majority of 24-34 year olds don’t understand the mechanics of their pension.
“With so many people worried that they won’t save enough for a comfortable retirement, it is crucial for schemes to improve communications to ensure members have guidance and understand the importance of their financial futures.
“Pension schemes need to carefully consider their engagement strategies, using language that is positive, plausible, plainspoken and personal. Using the right words and forms of communication can help schemes connect and engage with its members.”