Bringing Millennials Back From The Brink! | DMA

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Bringing Millennials Back From The Brink!


Who are Millenials?

Millennials were born post-1980 in an online era where everything is a click away.

They understand crowdsourcing and freecycling preferring to turn to a community switched on to sharing and swapping than going to traditional providers. Experiences are more important to them than material things. Many are opting to rent rather than buy. They are not loyal to one brand, always on the look out for a better deal. They are constantly on the move. According to Forbes, millennials change jobs on average every three years. They don’t want to be tied down by long-term loans, indeed many don’t want to be tied down to permanent employers either and are opting to freelance joining the ever growing gig economy. PeoplePerHour, an online freelance marketplace, forecasts 50% of people in the US and the UK will be freelance by 2020.

It’s time to connect

Millennials are a breed far apart from their parents. The pensions industry has quite simply failed to connect with them. Many started their first jobs in the aftermath of the financial crash in 2008 and put bluntly, they do not trust the financial services industry. Equally, the industry does not understand them. Often branded as fickle and shortsighted, millennials are just more discerning than their parents.

Why should they accept the status quo? Every other industry has moved with the times - on-demand TV, music, taxis, food, retail, etc. Indeed, recent research conducted by millennials from Cambridge University for BNY Mellon which surveyed over 1,200 millennials from the UK, USA, Japan, Australia, Brazil and the Netherlands between July and September 2015 said that the only interaction millennials had with their pensions provider was once a year when they received their annual statement.

So who is more shortsighted, the industry for failing to communicate with Generation Y or Generation Y who are oblivious to their own retirement needs?

The answer is irrelevant. What is relevant, is the urgent need for pensions providers to connect with what will soon become generation lost.

Educating Generation Y

It’s quite simple, millennials’ lifestyle needs and wants are different from their parents.

They value experiences and they have higher expectations from life than their parents. A stable job and a mortgage are no longer enough. This may sound fantastically naïve but contrary to public belief, millennials are not completely in denial. The crux of it is that they just do not know enough about pensions. BlackRock Investor Pulse survey of 30,500 financial decision-makers, in 20 countries, aged 25 to 74 years old, from July-August 2015 revealed that one in five millennials will live to see their 100th birthday yet they predicted they would only live till they are 79.

According to Rebecca Taylor, director of the Chartered Institute for Securities and Investments, today’s 25-year-olds need to save the equivalent of £800 a month over the next 40 years to retire at 65 with an income of £30,000 a year. Many will baulk at this - how are they are supposed to do that in addition to paying rent or saving for a deposit for a home? It is just too daunting and many feel that they may as well give up, relegating pensions to the “too difficult to deal with box”.

When asked what prevented them from saving for the long term, 48% of respondents to a survey by the Pensions and Lifetime Savings Association (PLSA) said the cost of living was too high and 43% said their salaries were too low. Research by the National Skills Academy for Financial Services (NSAFS) in partnership with AXA Investment Managers (AXA IM) surveying 2,002 UK adults aged 18+ from 31 July to 4 August 2015 showed that nearly 60% of 18-34 year-olds say they need more financial education to help get them ready for retirement.

Auto-enrolment into workplace pension schemes will help somewhat in bringing millennials back into the fold. Indeed more than six million people have been enrolled, but experts say that this still may not be enough for them to retire comfortably. Indeed, some millennials will already be 38 when auto enrollment kicks in in April 2017.

What Millennials want…from their pensions…

It’s not that millennials don’t want pensions. It’s just that they consider other major life events more pressing such as buying a house or paying for further education which they may need to draw out money for. Millennials are more likely to invest in pension products which enable them multiple withdrawals over time to cater for these.

According to research by BNY Mellon and undergraduates from Saïd Business School at the University of Oxford which surveyed over 1,100 millennials across seven key markets — Australia, Brazil, China, Japan, the Netherlands, the United Kingdom and the United States between February and April 2014, 51% of millennials would be more inclined to save for the future if their retirement money was not completely locked away.

Simply put, millennials have a low appetite for locking away their money for long periods of time.

Making a difference

Millennials don’t want the same products their parents invested in. This is the generation that wants to make a difference. They choose not to invest in negative industries such as arms and cigarettes, preferring to invest in ethical products, supporting society at a grass roots level.

The industry has traditionally branded these products as unsuccessful but if more millennials knew about them, they would be more likely to invest. According to BNY Mellon’s research in 2015, 47% of those surveyed would exclude pensions providers who do not give them the option of avoiding negative social investments.

Social finance could offer financial services providers an abundant supply of positive, emotional stories with which to construct a new narrative to connect with millennials.

Equally, millennials want to use technology as a tool to invest as well as to invest in technology companies themselves. They invest in the technology they can relate to, choosing Amazon, Google, Twitter, and other relatively new, innovation-oriented companies. They are up to three times more interested in investing in emerging markets than those over 55 according to a 2015 E*TRADE Financial Corporation study.

Let’s make up

So perhaps there has been a misunderstanding.

Millennials haven’t shunned pensions and the financial services industry at all, they just don’t know enough. Indeed Generation Y wants their pensions providers to communicate to them in the appropriate way.

Although this is the online generation, they do not want their pensions providers communicating excessively through social media, they do not want them bombarding their online forums. To do so would seem “creepy” according to BNY Mellon’s research in 2015. However, just the right amount of digital communication with relevant information is what is needed. Many millennials stated that they wanted the ugly truth about retirement. Although no one wants to scaremonger, millennials need facts to be framed in a way they can understand. Hence, changing the narrative is imperative.

It is no use telling millennials that they need to save £800 a month, when they are facing rent and mortgage bills, planning holidays and paying for experiences. They want to understand and need help to budget accordingly. It has been suggested that the best way to do this is through games or apps. Indeed the average millennial has played over 10,000 video games by the time they turn 18. A recent paper by Deloitte, “The generation game, savings for the new millennial” shows that almost 90 percent of millennials check their smartphone within the first 15 minutes of waking.

In an era where disruptive technology caters to the immediate wants and needs of millennials through easy to use apps such as Deliveroo, Uber, Airbnb, Hello Fresh, Pact Coffee, etc., it is about time that the pensions industry dragged itself out of the stone age and provided savers not only with a pensions dashboard so that they can view all of their savings in one place but also allows them to adapt and potentially withdraw from their pensions at the click of a button. Indeed, Nutmeg has begun to offer simple mobile based pensions allowing savers to transfer other pensions and investments into one easy-to-use online account, however, it is still in the minority and the rest of the industry has yet to follow suit.

Change the narrative

The financial services industry has a real opportunity here to change the narrative around pensions.

As the technologically savvy, online, social media obsessed millennial generation comes of age and begins to actively manage their finances, it is increasingly necessary for financial institutions to understand how best to engage them.

Although pensions will never be cool, they are a necessity and millennials are aware of this. According to Pension Bee, approximately a third (32%) of the 25 - 44-year-olds surveyed across the UK said they were worried that they won’t be able to live comfortably in retirement.

Millennials are tomorrow’s high earners and although they may have a smaller pot, pension firms who engage with them now can hope to hold on to their business for longer.

Communicating to millennials in a way they understand and tailoring products to their needs will ensure that generation Y is not lost forever.

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