Millennials: How to Avoid Pension Poverty

It may be decades away, but smart Millennials should start planning for their retirement early - harness the power of compound interest to avoid pension poverty

Emma Wall 20 May, 2016 | 10:00AM
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Emma Wall: They say youth is wasted on the young, but before you get jealous of your child or grandchild consider the difference in financial circumstances between the millennials, that is those aged 18 to 25 and the baby-boomers that is those aged 55 plus.

First, let’s start with education. That was free for a number of baby-boomers including higher education. Millennials have had to pay up to £10,000 for tuition fees and that’s before living expenses get going. So they’re starting their careers, they’re working career, with a shedload of debt.

When they get there, when they get to the workplace, they’re going to start saving to get on to the property ladder. House prices over the last 40 years have gone up 40 fold, since around the 1970s. And of course when they’re saving to these unaffordable properties, they’re not saving for their future.

Saving for their future has also changed, those millennials will be looking at a DC, defined contribution pension scheme and baby-boomers have the benefits of a defined benefit scheme. What can the millennials do to redress the balance? Well, they can harness the power of compound interest.

Auto enrollment helps with this because this of generation who are going to benefit from their entire career saving into a pension scheme because they’ll be opted in. Unlike when we used to have to opt in ourselves, often leaving that decision to our 30s and 40s. With the power of compound interest on their side, these Millennials really should look forward to a pension without poverty.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Emma Wall  is former Senior International Editor for Morningstar