Under-40s are focused on saving but forget their pensions

28 Nov, 2018

28 Nov 2018  Under-40s are switched-on to regular saving but are failing to focus on their pensions, new research  from The Nottingham Building Society shows. Its independent nationwide study found less than half (46%) of 18 to 40-year-olds have started pensions despite being disciplined and regular savers.

The Nottingham’s study found just 10% of under-40s are not saving or investing each month outside of pensions and on average are putting away around £370 a month.

By contrast pension savers under 40 are investing an average £230 a month. Many are also overestimating how much the State Pension is worth with one in four believing it will pay £10,000 or more a year despite the maximum currently available being £8,546.

The under-40s are more likely to have savings accounts or cash ISAs which they can take money out of easily rather than pensions which they cannot, research shows. Around 78% of under-40s have savings accounts while 51% have cash ISAs.

The main reason for not saving into a pension is focusing on paying off debt in the short-term with 22% saying they want to get out of the red before investing for retirement while one in five say they prefer to spend their money.

The table below shows how the savings habits break down among the under-40s with younger savers the least likely to have pensions but still nearly as likely to have other cash savings as older groups.

TYPE OF ACCOUNT 18 to 24-year-olds 25 to 34-year-olds 35 to 40-year-olds AVERAGE
Savings account 77% 80% 76% 78%
Cash ISA 30% 54% 57% 51%
Pensions 21% 51% 52% 46%
Equity ISA 13% 30% 22% 25%
Shares 9% 25% 18% 20%
Other stock market accounts 8% 17% 12% 14%

The Nottingham is supporting savers with a range of accounts including the Lifetime ISA (LISA) which helps under-40s save for their first home or for later life. Around 47% of under-40s surveyed said they had heard of the LISA and two out of five say they will probably or definitely open one in the next two years.

The Nottingham’s Director of Member Services Tina Hayton Banks, commented
: “It’s refreshing to hear so many under-40s have developed a savings habit and are disciplined about putting away money each month but disappointing that they’re clearly not as committed to pensions.

“With an aging population that sees people living longer, many will experience a retirement shortfall if they don’t pro-actively prepare whilst they are young and this generation will need to do more due to rising house prices and changes in state pensions.

“At The Nottingham, we are committed to supporting and rewarding members who plan for their financial futures and although retirement may seem a long way off, the earlier you start saving for retirement the better. Products like LISA have been great for kick-starting that savings habit or putting retirement planning on the agenda for the younger generation. From ensuring they’re getting the right advice to knowing and understanding all the options available to them, The Nottingham is proud to be supporting savers in our heartlands and beyond.”

Savers are eligible for up to £1,000 of cash bonuses every year through Lifetime ISAs and The Nottingham is one of just three providers to offer the Cash LISA. As well as the 25% bonus, The Nottingham will pay 1.00% AER interest tax free, on the savings balance every year.