Those under the age of 40 are savvy when it comes to their saving habits, but are failing to focus on their pension and retirement planning, according to new research from The Nottingham Building Society.
In its nationwide study, the society found that less than half (46%) of 18 to 40-year-olds have started contributing towards their pension, despite being disciplined and regular savers, putting an average of £370 away per month. In comparison, just 10% of those aged between 18 and 40 are not saving or investing each month outside of their pension contributions.
By contrast, the average for those savers under 40 that are also paying pension contributions is £230 per month. Furthermore, the research revealed that many are overestimating how much the state pension is worth, with 25% of them believing it will pay £10,000 or more per year, despite the maximum currently available sitting at £8,546.
The building society highlighted that the under-40s are more likely to have opened instant-access savings accounts or cash ISAs, allowing them to easily withdraw funds, rather than contributing towards a pension, which they would not be able to access. Approximately 78% of under-40s have open savings accounts, while 51% have cash ISAs.
According to The Nottingham Building Society, the primary reason that under-40s do not save into a pension is because they are focused on paying off debt in the short-term, with 22% claimed they want to get out of the ‘red zone’ before investing for retirement. However, 20% of respondents admitted they would prefer to spend their money, rather than saving it.
Commenting on the findings, The Nottingham Building Society director of member services Tina Hayton Banks said: “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.”
However, the society is urging those under 40 to open a savings account designed to prepare consumers for retirement, such as the lifetime ISA (LISA). The lender found that just 47% of under-40s had heard of the product, while only two in five stating they will probably or definitely open one in the next two years.
“Although retirement may seem a long way off, the earlier you start saving for retirement the better. Products like the LISA have been great for kick-starting that savings habit or putting retirement planning on the agenda for the younger generation,” Banks added.
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