When you work in the financial advice industry, it can be easy to forget that young people do not think enough about their pension.
Of course, that is somewhat of a blanket statement but, in my experience, those in their 20s and older in some cases probably think about it once a year.
That said, for many, there is eventually a lightbulb moment. At varying points in people’s careers, they suddenly seem to realise that they cannot work forever and will need another form of income for later life. Among my group of friends, this realisation is followed by a panicked call to me to work out what they can do to improve their retirement prospects.
While there are always solutions to abate at least some of their fears, I can’t help but think the situation could all be so much better if they had just started saving more into their pension a few years earlier. Sadly, the magic of compounding is not something most people have understood the merits of.
With this in mind, there needs to be more financial education at every point of someone’s life. Building a solid foundation of financial capability in young children as early as possible is key, but this has got to be built upon as time goes on.
All this education should hopefully culminate in people recognising the importance of the company pension scheme when they first start out in their working life.
Automatic enrolment has done its part to start reducing the problem. However, even with the increase in minimum pension contribution levels coming this April, potential income figures provide little comfort to the average saver.
For instance, a 25-year-old on a current average annual UK salary of £28,700, who remains in a similar role and is auto-enrolled until the age of 68, can expect to receive a retirement income of around £5,600 per year in real terms, excluding state pension.
While they are likely to see increases in their salary between those years, and hence an increase in contributions, the projections will still often turn out significantly less than most of my clients tell me they expect to spend during retirement.
Such low figures are naturally a cause for concern and should be the wake-up call everyone needs.
Auto-enrolment is a solid step in the right direction but it is by no means the silver bullet for a generation faced with significant short-term costs, such as house deposits.
Professionals in previous generations would have had the luxury of a defined benefit pension but individuals today need help to find the sweet spot where these goals do not come at the expense of contributions.
Financial planners have a key role to play in this process. They must take the opportunity to make sure the children of current clients reach that lightbulb moment earlier in life and diligently save into a pension as soon as they can.
In particular, there is an opportunity to reveal the merits of subjects such as compounding and the inferiority of a pension which has not had enough attention to clients and their children. It is vital we help future generations help themselves with well-guided advice.
Gabriela Strug is financial planner at Quilter Private Client Advisers