<\/p>\n
A new study has revealed how nearly two million younger people could have an extra \u00a37,000 a year in retirement income, simply through a series of small behavioural nudges[1].<\/p>\n
Getting young people to picture their \u2018future self\u2019 and introducing simpler pension labels to link contribution levels and retirement income were just two small changes that were shown to boost future retirement savings by up to \u00a3142,450 amongst those under the age of 30.<\/p>\n
The study looked to understand what motivated younger people to save more, particularly at a time when their immediate economic outlook may look bleak. The process included psychological testing by the Behavioural Insights Team (BIT) with around 3,000 22\u201029\u2010year\u2010olds across the UK to learn more about their attitudes, confidence and expectations around their future finances.<\/p>\n
The experiment tested different approaches in an attempt to identify what small \u2018nudges\u2019 could make the biggest difference to those who had pointed to a lack of awareness of pensions and information on how to change their contributions.<\/p>\n
Small \u2018nudges\u2019 could make the biggest difference<\/strong> 2. Reframing investments over savings: When participants were asked how much to \u2018invest\u2019 in their pension as opposed to how much they should \u2018save\u2019 \u2013 the amount they recommend someone puts aside shot up by a third (34%).<\/p>\n 3. Prompts drive engagement: Once young people start actively thinking about their future, they\u2019ll care more about their retirement prospects. After answering a set of questions about where they see themselves in the future, the number of participants who want to raise their pension contributions increased by 11%, equivalent to 800,000 young people saving more.<\/p>\n Persistent problems of pessimism and disengagement<\/strong> Most people wanted to retire by 64 at the latest (63%) but expected it to be much later. In fact, over one in five (21.9%) expect either to retire after 70 or never actually stop working. The main barriers to saving were having no spare money after paying their bills, the need to save for a major expense such as a house deposit or paying off debts.<\/p>\n However, beyond these \u2018financial constraints\u2019 the two most common answers were simply they hadn\u2019t thought about retirement or savings (21%), and didn\u2019t know how to increase their contributions (15%). This situation has only intensified with mass unemployment looming and more than a quarter (26%) of 18% of 24 years\u2010olds having already lost their job. Sectors and jobs that young people disproportionately work in, such as hospitality and retail, part\u2010time and zero hours, have been the most affected.<\/p>\n Source data:<\/strong> Behavioural Insights Team research<\/strong> Calculations<\/strong> Retirement Report research<\/strong> INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.<\/p>\n THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.<\/p>\n PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.\t\t<\/p>\n","protected":false},"excerpt":{"rendered":" Boosting future retirement savings Young people are faced with a unique set of challenges when it comes to saving for retirement. One of these is perception. They can often think of their \u2018future self\u2019 as a different person and so may prefer holding on to their income for more immediate priorities, like a first home… Read more »<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"_links":{"self":[{"href":"https:\/\/www.a1-financial.com\/financialnews\/index.php?rest_route=\/wp\/v2\/posts\/3225"}],"collection":[{"href":"https:\/\/www.a1-financial.com\/financialnews\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.a1-financial.com\/financialnews\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.a1-financial.com\/financialnews\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.a1-financial.com\/financialnews\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=3225"}],"version-history":[{"count":0,"href":"https:\/\/www.a1-financial.com\/financialnews\/index.php?rest_route=\/wp\/v2\/posts\/3225\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.a1-financial.com\/financialnews\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=3225"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.a1-financial.com\/financialnews\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=3225"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.a1-financial.com\/financialnews\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=3225"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\n1. Labelling makes a difference: By including tangible explanations, such as \u2018a 12% contribution would keep you above the poverty line\u2019 and \u2018a 15% contribution would allow for a comfortable retirement\u2019, twice as many young people would recommend almost doubling pension contributions from the default minimum of 8% to 15%.<\/p>\n
\nResearch carried out alongside the experiments found that young people were relatively pessimistic about their retirement. Nearly 90% stated they were either not at all confident, a little confident, or moderately confident they were doing enough for their retirement.<\/p>\n
\nBefore COVID\u201019, nearly half (49%) of 22% of 29 year olds were not saving adequately for retirement, meaning they face working for far longer than they expect to, or retiring with only enough money to cover the basics.<\/p>\n
\n[1] Scottish Widows study<\/em><\/p>\n
\nBIT conducted a short experiment with 2,822 22\u201029\u2010year-olds, focused on increasing engagement with pensions. Each participant saw one of four vignettes about \u2018Alex\u2019, a 25\u2010year\u2010old with average income and default contributions, and their responses to how Alex should change her savings were recorded.<\/p>\n
\n\u00a3142,450 calculated using the online MAS pension calculator. Based on a 22-year-old earning the UK average salary, \u00a330,420 (ONS), increasing combined employer and employee contributions from the default 8% to 15%.
\n8% contributions = \u00a3162,799 saved into a pension by 68, or \u00a317k income p.a., including State Pension.
\n15% contributions = \u00a3305,249 saved into a pension by 68, or \u00a324k income p.a., including State Pension.<\/p>\n
\nAdequate Savings Index based on research carried out online by YouGov across a total of 5,757 adults aged 18+.
\nData is weighted to be representative of the GB population. Fieldwork was carried out 26 March \u2013 11 April 2020.<\/p>\n