Clare Mulligan provides an insight into the Generation Y attitude to saving

A sense of entitlement and having no boundaries are ‘normal’ for younger workers who are the fastest growing group in the workforce. There is a growing interest in ways to manage and understand different generations in the workplace. The newest generation in the workforce is known as Generation Y and they have received a lot of interest from popular press, based on anecdotal evidence which has generated a demand in academic, financial and HR fields of research. Generation X and Generation Y are now making up the majority of the workforce, with Generation Y employees growing in numbers most quickly.

Generation Y, born in the mid-1980s and later, tend to work-to-live and expect information to be available at all times. Research into their approach to work suggests that they anticipate having a number of careers, seen as ‘boundary-less’ and they will view options to move from one career to another encompassing several experiences and paths rather than a series of jobs, and working for extended periods in economic uncertainty. They will have the longest life expectancy and understand that they will have to take responsibility for a financially sound old age.

After that they become a lot like other generations in the workforce: not that savvy about pensions and saving.

Understanding Generation Y is on the agenda of many pension providers and employers for this reason. They need to be persuaded to start saving for retirement at a relatively young age. Automatic enrolment will provide a hefty shove after 2012, but they will still be reluctant to save for tomorrow instead of spending, or reducing debt, today. How do we get them to feel – and value – the benefit? In the face of auto-enrolment, pension scheme providers are having to understand this generation so that product and systems design is meeting the demand of their new consumers to ensure they can engage the employee in pension contributions and also a social responsibility to encourage this generation to save for a future where state benefits may not be relied on.

One way is to deal with the trust issue: young workers want to be able to trust employers to select the right benefits package for them. They want to be able to trust the industry to respect their income sacrifice.

This generation is popularly known as the ‘entitled generation’ but as supported by Fisk (2010) this should not be seen in a negative light. Entitlement here is about social justice, having rights, and expecting fairness.

According to Naumann, Minsky, & Sturman, 2002, entitlement within an organisational context can be defined as “the compensation expected as a result of an individual participating in an employment relationship”. Compensation can be taken to include all financial returns, tangible services and benefits. The view of the mentality of this generation is ‘live for today’ but recent research has shown the impact of the economic times in reducing the entitled view of this generation.

But this sense of entitlement does not necessarily include knowledge about the cost and purpose of rewards. Telling them about the cost of rewards should be explicit. Employers need to be frank and transparent about the full rewards and benefits available to this generation. These young workers realise that the state is not going to support them in later life but they still need to ‘get’ what is needed to provide an income for life. A 2007 study by the Department for Work and Pensions, of people between the ages of 16 and 29 found that they understand pensions at a very basic level but very little about how they operate.

A better understanding is crucial for a number of reasons. This generation sees careers as ‘boundary-less’ and expect to move from one career to another encompassing several experiences and paths rather than a series of jobs. This immediately raises issues about pension portability and consolidation.

Generation Y employees will have the longest life expectancy but they will be working through times of economic uncertainty in the workplace and in the world. Their ‘live for today’ approach is both fed and challenged by this economic uncertainty because it can seem necessary but impossible to plan for all eventualities. The full extent of the impact of macro events should be considered when designing products and services for people who are being told that they will have to contribute more towards their retirement but can’t expect to retire for a very long time. Add that to lingering student debt, possible tax rises, deficit reduction and news of financial meltdown in Europe and the arguments for saving have to be good.

How they get information has to be smart and relevant. This technology-driven generation demands 24/7 access to information. Research by Platforum, the online information source on investment platforms, has shown that employees have greater interest in total rewards packages and they want to see these online whenever. Platforum found that the design of employee benefit packages has to allow flexibility and interaction in order to suit the Generation Y’s mantra of ‘work to live’, rather than ‘live to work’.

The Department for Work and Pensions’ report did show that this generation regards employer contributions into a pension scheme as a positive thing. For many it is a trigger to encourage them to contribute in order to benefit from what is seen as ‘free money’ and the ease of salary deduction.

Automatic enrolment into pensions is also seen as positive but those surveyed were less keen on the government managing their pensions. They prefer to take control of their finances and protect their own future. Being able to trust that their money is being paid into a pension scheme and invested wisely on their behalf is something employers and financial advisers will have to consider.

When developing our solution for a corporate wrap, Source Pensions used this research to inform development. Employees should have access to their pension contribution history in a similar way to how the rest of us access online banking.

Traditionally employees have received confirmation of their contributions annually via paper benefit statements. This will not do for Generation Y, but the industry is proving slow to change. This generation expects nothing less than being able to access their information 24/7 and being able to query or research further if required. Auto-enrolment is likely to speed things up but this generation is in the workplace now and expecting better. Employees’ trust in the relationships they have with advisers and employers can be enhanced if all parties have up-to-date financial information readily available.

Source Pensions believes that the initial access to online pension information should be jargon free and easy to understand but users should also be able to drill down to more detailed information as required. Access to booklets and explanatory information should be up to date, easy to read and available online too.

Smart phones are rapidly increasing access to the internet and the belief that information can be accessed at any time and any place. And not just accessed, for those constantly engaged with the online world, updates and messages fed to them are expected. Pension scheme information should be no different to any other financial service product and the inclusion of phone applications should be supported. Some degree of interaction improves trust in the brand providing this information.

The pensions industry has talked for decades about the need to improve pension communications and the time has now arrived to really get into the mind-set of young workers. Good communications are an entitlement best serviced by understanding the customer.

Written by Clare Mulligan, director of Source Pensions

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