Will the Kickstart Scheme encourage younger people to engage with pensions?
As part of the government’s ‘Plan for Jobs’, a new Kickstart scheme is being put in place. It is a £2 billion investment by the Government to try and create hundreds of thousands of new jobs for young people across the country. The Government will pay employers the minimum wage, National Insurance contributions and pension contributions (based on a minimum 25 hours per week, 6 month placement).
At the moment, retirement for younger employees is so far in the future they feel as though they don't need to think about it. 'Retirement' is this distant, grey, blurry thing that'll happen many years down the line. It's our job as advisers to educate this demographic and shine their retirement through a lens so that we make their it clearer, brighter and bring it into sharper focus as early as possible. We want them to understand that if they see and feel how important it is, they'll make the right decisions now so that they achieve the retirement they want!
We spoke with our very own Jack Saunders, a Financial Adviser at Lemonade Reward, to find out how this scheme could help younger people start saving into their pension.
Jack Saunders, Financial Adviser at Lemonade Reward
Do you think the Kickstart Scheme will help encourage more young people to start saving into their pensions?
“The Kickstart Scheme could have a positive impact on younger employees when it comes to contributing to their pensions, so that they are ready for retirement which may feel so far away! However, given the Government’s assistance covers the minimum wage and nothing more, unless employers are significantly topping up their earnings, I would say it is unlikely to have much of an impact on younger employees and their pensions.
When you look at the minimum criteria to be auto enrolled, the age is 22 and your earnings have to be at least £10,000 pa. A large proportion of those being employed under the Kickstart Scheme will not meet this criteria and therefore do not need to be automatically enrolled into a pension. They could be given the choice as to whether they want to be in the scheme regardless of their age and earnings, but what is the likelihood that an 18 year old earning minimum wage will want to give up some of their earnings as pension contributions for their retirement which is 40+ years away?”
Will this help younger people to carry on paying into their pension?
“It depends on how much understanding they have about pensions and retirement. Younger employees are likely to be focused on goals that do not involve retirement planning. When looking at their financial life cycle, younger employees will most probably have different financial goals than someone in their 50's. They will be more focused on saving to purchase a home and getting onto the property ladder as opposed to how much money they need to save for their retirement. If someone is looking to buy their first home, a new car or go on holiday, and they see their payslip includes £60 every month going into a pension, they may well think about stopping and focusing on their short term goals rather than their longer term needs.”
What else can we do to encourage younger members to stay engaged with their pension?
“Having set plans linked to their financial goals, with the assistance of financial education could really help younger employees to understand their pension savings and why it's important to start as early as possible. With the right help and advice available to them, younger employees will be encouraged to start saving for retirement as early as possible and continuing with that over the longer term.
Communication is always key. If you aren’t specifically targeting this member segment, they will most likely never know the benefits of paying into a pension when in their 20’s and 30’s.”