3 ways financial planning can help bridge the millennial pension gap

Published on November 16, 2021 by Andrew
A young woman takes a selfie with her parents outside a café

For the first time since the 1800s, a whole generation is, on average, worse off than their parents.

According to Business Insider, each new generation in the UK from 1881 onwards had their income grow by about 50% compared to the generation before them. For millennials, however, this trend has come to an end.

Rising house prices have inflated the wealth of older generations, leaving those in their 20s and 30s – who also struggling against rising costs of living and stagnant wage growth – unable to get onto the property ladder. The situation has been exacerbated by the pandemic, the financial ramifications of which have disproportionately affected the young.

The impact can be felt in millennial pension savings. Research published in FTAdviser found that up to 10 million Brits are at risk of falling short of their pension expectations and could find themselves unable to live their desired lifestyle in retirement.

So, how can financial planning help mitigate the impact of this generational gap? Keep reading to find out.

Workers may need to pay as much as 12% into their pension

FTAdviser claims that a 22-year-old starting to pay 8% into a defined contribution pension scheme now would receive £46,000 less in retirement than a 22-year-old who paid the same amount into a pension but started in 2007.

This is due to the “lower-for-longer” environment of low interest rates, low bond yields, and restricted stock market growth. A pension saver aged 22 now would need to contribute nearer to 12% to achieve the same retirement fund.

Millennials and Generation Z are also expected to be “late financial bloomers.” Starting a family and buying a home later in life than previous generations mean securing financial stability later too.

If you or your child are in this situation, understanding how financial advice can help is crucial. Here are three ways.

1. An adviser can help you to understand the importance of pension contributions

While auto-enrolment has greatly improved the long-term financial outlook of many UK pension savers, an 8% contribution is unlikely to support a dream retirement.

Speaking to a financial adviser can help you answer some important questions:

  • What type of lifestyle do I want to live in retirement?
  • How much will my current contributions provide?
  • How much do I need?
  • Should I increase my contributions to make up a shortfall?
  • When is the best time to start saving?

A pension is designed to provide you with an income once you finish work. Beginning to contribute as soon as you can, will give you the benefit of more contributions, compounded over a greater period. You’ll also receive pension tax relief and the contribution top-up from your employer.

If you have opted out of your employer’s basic pension plan, consider restarting payments as soon as possible.

2. An adviser can help you craft your budget and produce a cashflow model

A financial plan can help you to budget effectively, putting money aside for your future, while providing a comfortable lifestyle now.

We can use cashflow modelling to help you understand your income and outgoings, calculate your disposable income, and identify areas where savings could be made.

The plan we help you to put in place will be aligned with your long-term financial goals. Perhaps you want to go travelling in a few years but still want enough to be able to pay off your mortgage by a certain age? Perhaps you want to save a healthy nest egg for your children as they transition to adult life while retaining enough to ensure you can live a comfortable retirement?

Cashflow modelling could help you to find ways to save more for your future now. Understanding what your dream retirement looks like is the first step. We can then help you make the tangible changes to your saving and spending habits needed to make that dream a reality.

3. Advice can remind you of the importance of factoring in other pensions

Your workplace pension won’t be your only source of income in retirement. You might have other savings and investments, as well as your State Pension entitlement.

You’ll need to think about any other workplace or personal pensions you hold. You might have lost track of some smaller pensions. Use the Pension Tracing Service to find them and them speak to us. We can advise on the pros and cons of pension consolidation and help decide if it’s right for you.

While your State Pension might not be the bulk of your retirement income, it is still a good foundation on which to build your financial security. We can help to ensure you receive your full entitlement and work this amount into the plan we build for you.

The maximum new State Pension amount for the 2021/22 tax year is £179.60 a week – or £9,339.20 a year. This is set to rise to £185.15 a week for 2022/23 (or £9,627.80 annually).

Get in touch

Financial planning isn’t just about your money. A financial planner is there to establish what your goals are, and how your finances can effectively achieve them.

At the Pension Planner, we can help you build a long-term plan aligned with your goals, helping you to live your dream lifestyle in retirement. Email info@thepensionplanner.co.uk or call 0800 0787 182.

Please note

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investment (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts.

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