Millennials’ pension pots have reduced in size since the introduction of auto-enrolment, analysis from Equiniti has found.
According to Equiniti’s examination of recent ONS statistics has highlighted that millennials’ total pension wealth has decreased from the period 2010-2012 to 2014-2016.
In this period, the overall savings of UK workers aged 25-34 fell from £12.8bn to £12.2bn, leading millennials to be the only age group to see a decline in pension wealth since the introduction of the workplace pensions policy.
Workers aged 16-25, however, saw their pension wealth almost double from just over £600m to £1.1bn from 2010-2010 to 2014-2016.
While millennials’ pension wealth may have reduced, this group has seen participation rates in auto-enrolment increase from 35 per cent in 2010-2012 to 54 per cent now, the largest rise in any age group.
As a result of the improved participation rates, the average pension pot size has been diluted. The median pot size has been reduced from £9,400 for 25 to 34 year-olds in 2010-2012 to £5,000.
Equiniti propositions and solutions director Chris Connelly commented: “Auto-enrolment has been a great success in improving the proportion of pension savers, particularly among the younger age group where participation levels have increased significantly. However, it is crucial that those being auto-enrolled into pension schemes for the first time do not consider it ‘job done’ and disengage from their savings.
“Increasingly, this is the generation that expects to deal on their own terms. Therefore they will require no encouragement to take up digital services from suppliers, but they will require clear communication and engaging education.”
Nonetheless, Connelly highlighted the fact that simply abiding by minimum contribution rates is not enough to build a sustainable and desired level of income for retirement. As a result savers and millennials in particular should take a more active and engaged approach to their pension savings to avoid getting a “nasty shock” as they near retirement, he said.
Last week the minimum contributions for auto-enrolled pension schemes rose from 2 per cent to 5 per cent, with an additional increase to 8 per cent scheduled for April 2019. Schemes await to see how these affect opt-out rates, especially among younger generations who will see more of their pay being put into their pension.