New findings from Phoenix Group, the UK’s largest long-term savings and retirement business, highlight that a significant proportion of millennials (those in their late 20s to early 40s) are struggling to save for retirement.
The study reveals that 59% of millennials are finding it difficult to contribute towards their pensions, with many prioritising short-term financial commitments over long-term savings.
This research, based on a survey of 4,000 UK adults, points to a range of life events and challenges that are disrupting millennials’ ability to save for retirement. Millennials face unique financial pressures compared to other generations, making it more difficult to put money aside for their future.
Life Stage Challenges Impacting Retirement Savings
A key issue for millennials is that they are often in the midst of life stages that involve significant financial outlays, such as parental leave, childcare responsibilities, and buying a home. According to the survey, 25% of millennials cite changes in income as the primary reason for their struggles in saving for retirement, while 24% say that childcare costs are a major barrier.
Millennials are also twice as likely as any other generation to point to childcare responsibilities as a reason for not being able to save, reflecting the challenges they face at this life stage. The burden of these responsibilities is particularly acute for women, who tend to take on more of the childcare and caregiving duties. Previous research from Phoenix Insights indicates that the pension savings gap between men and women begins to widen between the ages of 25 and 34 and continues to grow. By the time they are between 45 and 54 years old, men are saving 50% more per month into their pensions than women (£245 vs £165).
Financial Pressures Over Pension Savings
The research highlights how millennials are focusing on immediate financial priorities rather than pension contributions. Only 20% of millennials say that paying into their pension is a top priority, with most opting to focus on short-term financial goals. As a result, 7% of millennials have decreased their pension contributions over the past year, and another 7% have stopped them altogether.
Patrick Thomson, head of research analysis and policy at Phoenix Insights, remarked: “The stereotype of the spendthrift generation is all too familiar when it comes to millennial finances, but the reality is far removed from the ‘avocado on toast’ tag placed on them. As a millennial myself, I know first-hand the pressures many at this stage face weighing up competing priorities that pull us in different directions.”
Thomson also highlighted the risks of stopping or reducing pension contributions, even if only temporarily, saying, “There is a risk that if people don’t readjust their savings once they have got through a short-term financial challenge they will reach retirement with much less than they’d hoped for.”
The Role of Employers and Saving Gaps
According to Phoenix Group’s findings, as many as 17 million people in the UK are not saving enough for the retirement they expect. The report calls for individuals to address these saving gaps where possible, but it also stresses the role employers can play in supporting their employees’ retirement savings.
Employers are encouraged to maintain pension contributions during key life stages, such as parental leave, when financial pressures can lead employees to reduce or stop their pension savings. This support can make a significant difference in ensuring that employees continue to save for their future even when faced with short-term financial challenges.
New Model for Retirement Adequacy
In response to these challenges, Phoenix Insights has recently partnered with Nest Insights to develop a new model for determining retirement adequacy. This model takes into account the vast differences in personal circumstances and income levels that impact how much a household can save for retirement.
The report, titled ‘How Much is Enough?’, models the saving journeys of 30 different personas, each representing different income levels and life stages. It offers insights into how much individuals should be saving to ensure they have enough for their retirement.
This approach moves away from a one-size-fits-all model of retirement saving, recognising that different households have different capacities to save and that life circumstances—such as income changes or childcare responsibilities—play a crucial role in determining what is adequate for retirement.
As millennials continue to balance competing financial priorities, these new insights may help both individuals and employers better understand how to address the retirement savings gap and plan for a more secure financial future.
