Less than half of young people are committed to staying enrolled in their pension scheme after minimum personal contributions rise in April 2018 and 2019, according to research from Scottish Widows.
The 13th annual Scottish Widows Retirement Report found that when 22- to 29-year-olds were asked if the planned increases (8% employee and employer combined in 2019) would affect how they save, just 48% committed to staying enrolled. However, the researchers warned that 70% of those under 30 were not putting away enough money for their retirement to reach an income of £23,000 when they retire. Average contributions were £184 a month (including employer contributions), meaning they can expect an annual pension of just £15,200 (which includes the current state pension).
Half (53%) of those in their 20s told the researchers they cannot afford to save for the long term because of competing financial priorities. This age group were saddled with twice as much debt as other age groups, on average owing more than £20,000. Almost four in 10 (37%) have student loans eating into their monthly pay cheques, one in five (21%) have unpaid credit card bills, and 15% have other loans to pay off.
This was found to be a source of stress for younger people, with 14% reporting that their finances have contributed to mental health issues. Four in 10 (40%) people in all age groups said that their health has suffered as a result of financial concerns.
Brian Dow, managing director of Mental Health UK, warned that mental illness can affect different areas of our lives, from our physical health to our relationships or how we manage our money. "There is ample evidence to suggest that there is a strong link between mental ill health and money problems, which is why this is a key area that we are currently working on, as we want to ensure that the appropriate help, support and advice are available to anyone affected,” he said.
Catherine Stewart, retirement expert at Scottish Widows, said young people should be doing more to prepare for their retirement. "Auto-enrolment may well be lulling people into a false sense of security that they are putting away enough for a comfortable retirement," she said. “While retirement may feel like a long time away for those in their 20s, it’s really important they start to think about it as soon as possible."
“People naturally associate pensions with their work and therefore the workplace is a great channel to help address the issues raised by our research. HR professionals can make a real difference by encouraging their workforces to engage with retirement planning, and making the relevant support and information easily accessible," she added.