What does retirement look like for millennials and Gen Z? Here's what hundreds of pension experts told us.
Welcome to Finance Wrap-Up UK – your fortnightly dose of financial news and insights, created by LinkedIn News UK finance editor Manas Pratap Singh .
Whether you're a seasoned investor, a budding entrepreneur or want to stay on top of developments in the UK financial sector, we hope you find this newsletter useful, and if so, we'd love it if you subscribed .?
In this edition, we'll focus on what millennials and Gen Z workers can do to prepare for their retirement, explore AI's foray into finance and spotlight three "non-negotiable" action points for businesses to come up with a transformative climate transition plan by 2030.?
The Big Read?
Last week, the UK government announced it was delaying bringing forward the state pension age to 68 until after a further review in 2026. This, in turn, means that those born on or after April 5, 1977, will likely be the first cohort to have to work until they are 68 before they're eligible for the state pension.?
This decision could significantly impact many, particularly the millennial generation – born between 1981 and 1996 – who say they are already struggling to save up for retirement .?
According to industry research , over three-quarters of savers don't know how much money they'll need when they retire, and only a fifth are confident they are saving enough.
This, combined with uncertainty about the immediate future, has left many millennials feeling overwhelmed about retirement planning.?
In a recent callout by The Observer , hundreds of UK millennials said that they have no savings and are unable to contribute to a pension. They also expressed concern about their ability to afford a house, let alone save for retirement.
According to Hargreaves Lansdown , while more than half of savers believe the minimum auto-enrolment amount is enough to save for retirement, "this is unlikely to be the case".
The Pensions and Lifetime Savings Association advises that a single householder will need a retirement income of about ￡37,300 a year for a "comfortable" retirement – assuming they live mortgage and rent-free. But with 54% of UK millennials saying they live payday to payday, is that a realistic target for most??
We asked pensions industry executives, financial advisors and planners for insights they could share with young workers on preparing for retirement. Over 200 of them joined the discussion, with many of them touching upon similar themes and ideas.?
Some of the most frequent comments included taking maximum benefit from any pension programme available at work and educating oneself more about finances. Many touched on the need to start saving early and consistently and the importance of being informed about workplace pensions and other investment options. Some experts also highlighted mindsets as an issue, saying that many need to overcome fears about retirement planning.
Here are the top insights:
Starting early and working out how much you need to save?
According to Janet Mui, CFA , head of market analysis at RBC Brewin Dolphin , the first step in retirement planning is determining how much those years are likely to cost, to determine the money needed in total. The Pensions and Lifetime Savings Association (PLSA) is one source that provides reference calculations. However, it's essential to remember that the amount someone needs to save for retirement will be unique to their lifestyle.?
Nishh Shuvo , the founder of a venture capital firm, adds that it is vital to be realistic about pension goals and calculate precisely how much money "you'll need to live comfortably" after retirement. He says seeking professional advice could help with this.
And starting to plan early for retirement is recommended, even if it is in small amounts, says? Eve Read , senior director at Smart Pension . "This is worth mentioning because early savings have a much greater impact on your pension pot than savings decades later – due to the power of compound interest."
Maximising employer contributions
Helen Morrissey , head of retirement analysis at Hargreaves Lansdown , encourages people to contribute what they can to their retirement savings, no matter what stage of their career. She suggests fear is a contributing factor to why people often haven't engaged in a conversation around pensions.
Chartered financial planner Hollee Vivian LLB (hons) FPFS adds to this, that pensions can seem "boring" but are an important consideration. She agrees that people start adding to their pension as early as possible, and could even consider making pension contribution details part of negotiations when getting a new job.?
On the other hand, HR expert Steve Herbert , along with LinkedIn Top Voice and founder of Audeliss Suki Sandhu OBE , want employers to do more to help their workers plan better for retirement. They emphasise the importance of employers communicating both the benefits of saving for a pension and explaining the offerings to their employees, ensuring they understand their savings levels and options.
Tracking pensions over an entire career
Clare Stinton , workplace financial wellbeing analyst at Hargreaves Lansdown , and Andrew Marsden , senior corporate benefits consultant at financial services firm LEBC Group , highlight the importance of keeping track of all your pensions , no matter how small and seeking out advice on options such as consolidation. Clare Stinton also suggests that people could consider getting into the habit of increasing their contribution with annual pay reviews.
The average UK professional has six jobs over their lifetime and, with that, often come different pension providers. To keep track of old pensions from previous jobs, chartered financial planner Simon Warne APFS highlights the importance of keeping your contact details updated and?says: "Even though you aren't paying in anymore, [it] doesn't mean the money in these plans stays stagnant. The funds will remain invested and hopefully continue to grow."
‘Democratising’ financial knowledge?
When it comes to finances, Suki Sandhu OBE believes that employers, and those with knowledge about saving and investing , should "democratise learning" so that people can develop a better understanding of finances and can better save for retirement.
Pensions expert James Smith says that financial education, coaching, and even professional financial advice can all be means of improving people's financial understanding and, ultimately, their plans for their future.?
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What do you think are the biggest challenges to planning a retirement in the current economic climate? Let us know in the comments below.
Disclaimer:?The information above does not constitute financial advice or recommendation and should not be considered as such.
In Focus
How will AI impact the finance sector?
Artificial intelligence (AI) could soon transform the finance industry in significant ways. AI's ability to process large amounts of data quickly and identify patterns that humans may miss could make its role in financial decision-making more prominent in the future.
Last week, the financial, software, data, and media company 彭博资讯 unveiled a finance-focused AI model called BloombergGPT , which has been trained on vast amounts of financial data so that it can understand and process human language, as well as specific financial terminology.?
According to a fixed income advisor at Pictet Group , Ignacio Ramirez Moreno, CFA , "for now, BloombergGPT will mainly assist Bloomberg in improving existing financial NLP (natural language processing) tasks." This includes "sentiment analysis, named entity recognition, news classification, and question answering."
"BloombergGPT has the potential to fundamentally transform the finance industry," mergers and acquisitions specialist Hassan Awada wrote on LinkedIn . He suggests it could do this by providing new approaches to analytics, insights, investing and risk management, enabling more accurate forecasts and predictions, as well as informed decisions.
According to wealthtech specialist Toufeeq Ahmed , it could also help wealth managers generate reports such as market analysis and earning reports and "make predictions about future market trends".
But there are also limitations to language models like BloombergGPT, Fabio Petroni , the co-founder and CTO of Samaya AI , told LinkedIn News UK . He explained that while large language models (LLMs) like BloombergGPT can retain a remarkable amount of information within their parameters, they may occasionally produce factually incorrect or "hallucinated" data.
Adding to this, Pictet Group 's Moreno said, "this [hallucination] is an issue with every LLM, but particularly relevant when analysing financial markets".
Fabio Petroni emphasised the need for caution and discernment when using such AI systems, as they may express high confidence in their responses, even when they are inaccurate, which could further complicate matters. Furthermore, he points out that BloombergGPT's knowledge base is limited to its training data's timestamp, which could potentially limit its reliability when addressing the latest industry developments.
Along with hallucinations and biases, Moreno highlights the currently limited use cases. He adds that so far, most use cases "released by BloombergGPT are centred around news (e.g. headline generation and sentiment analysis). However, as the model expands into other fields, particular attention must be paid to risk and compliance, ensuring financial regulations are always met."
Here is Moreno's explainer of what BloombergGPT could mean for the finance industry:
Idea of the fortnight?
According to new research from 安永 published this week, only a fraction of the UK's FTSE 100 companies have published "credible" climate transition plans . Another report published by the Committee on Climate Change (CCC) last week found that England is "unprepared" for the effects of global warming .?
Tara Shirvani, PhD , who is a senior research fellow at Smith School of Enterprise and the Environment - University of Oxford and former green infrastructure specialist at 世界银行 , took to LinkedIn to share three "non-negotiable" action points for a transformative climate transition plan by 2030.
Read her post here:
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1 年This is an ongoing problem as people aren’t taught about finance early on. However no one is discussing the more pressing issue of those women 45 and up who did not have todays environment to Lean in early on or negotiate and receive salary commensurate to their male colleagues. Or the women who step back to commit to do two rounds of caring duties (children then parents) so that their spouse/ partner could pursue their career ambitions and salary increases. Where those relationships break down or if they’ve relied on what turns out to be the poor financial management of their partner they can’t use the power of time and compounding for a retirement that -albeit is going to be years later than expected - but is still fast approaching
Business Owner/Digital Content Creator/Visionary
1 年I think what i just read from many concerned people about the state of pension. I'm a self employed person, that as no pension set up, but to rely on what I've saved and investments along the way. But its a real concern for the future children and most young adults don't even have a pension set up, simply because of the pros and cons. It's time to scrap the traditional route and consider building a system that is stabilised for the newer generation. What if we fight to build a system that all insurance are combined?, yet serve a purpose to earn credits or points system, if the policy is not used after year? Could that be the new pension?. A lady post 'that she as started a pension for her 8yr daughter '. Correct, cause I think every child should be born with a combined insurance policy that see them through their life, that you can invest and earn as you grow. Im building a system that a want all to be involved with.
Experienced regulatory medical writer
1 年I'm not that convinced I can ever retire. Britain has the worst state pension in Europe (~29% of average UK earnings) and Liz Truss' budget wiped over 2 years of contributions to my company pension. I'm lucky I enjoy what I do.
Principal Technical Expert for Well Design / Lead Engineer Franchise solutions
1 年Of course. delay of gratification is the way: invest your money instead of putting it the latest Phone 14 widescreen. If you look at growth over the last 10 years, e.g. nasdaq100 growth 2013:3000points 2023:13000points: That means if that you put $10000 in stock every year since 2013 .. you would now have $200000 worth. If you do that for 30 years ... who knows ...