New analysis from leading online pension provider, PensionBee, reveals that only 26% of young savers (aged 18-30) feel they can afford to take on some risk with their pensions, even though they are many years away from retirement.
In fact, just 7% of 18-30 year olds reported that they are currently invested in a high risk pension plan, despite savers of this age having the longest time horizon to recoup any losses. However, most young savers will be allocated to a workplace pension plan with a high equity content, which perhaps many simply haven’t recognised as high risk.
PensionBee recently surveyed over 500 British savers to understand their risk appetite for various financial products and services. When asked about the current risk level of their personal and/ or workplace pension, almost a third (32%) of young savers stated that they were in a low risk plan, despite over half (59%) of this age group identifying themselves as having a medium risk appetite.
Motivations for young savers staying in their current risk plan ranged from feeling the ‘process of moving plans would be too consuming’ (17%), ‘not liking the sound of a high risk plan as pensions are too important’ (15%), and finding pensions ‘too complicated or confusing’ (13%). Overall, 20% of young savers admitted to not knowing the risk level of their current personal and/or workplace pension.
Despite expressing some caution around high risk pension plans, when asked to rate various financial products and services, where ‘1’ is low risk and ‘5’ is very risky, the majority of young savers (32%) rated pensions as only a ‘2 out of 5’. When assessing other financial products outside of pensions, young savers felt that investing in cryptocurrency was a much higher risk, with over a third (35%) rating this as a ‘4’ on the scale. Buy Now Pay Later schemes were also viewed as higher risk than pensions, with nearly half (46%) of young savers rating these as a ‘3 out of 5’.
Cash savings accounts with instant access, and cash ISAs, proved to be the most popular financial products with this age group by far, with 57% and 42% of young savers using these products respectively. In addition, over a quarter (27%) of young savers reported never to have used stock trading or investment apps, despite their recent boom in popularity.
Romi Savova, CEO of PensionBee, commented: “Our findings suggest that, broadly speaking, young savers lack confidence in investing their savings in the stock market. Selecting a higher risk pension plan may seem daunting for young savers, especially if they are just starting out in their pension saving journey. However, while higher risk investments can see sharper increases and decreases in their value, they’re likely to provide a higher rate of growth than lower risk investments over the long-term.
It’s crucial for young savers to remember that short-term fluctuations are unlikely to cause any lasting damage, especially for those who are at least 30 years from retirement. Low risk plans tend to usually only be considered for savers who are withdrawing their entire pension imminently. If we are to see the younger generation fulfil their retirement ambitions, the pensions industry needs to work together to combat young savers’ lack of risk appetite.”
Appendix
Table 1: Which statement most accurately describes your reasoning for selecting the risk level of your personal/workplace pension plan?
| Response | Proportion of respondents |
|---|---|
| I feel I can afford to take on some risk as I’m many years away from retirement | 26% |
| I want to see some growth in my pension but not take on too much risk | 22% |
| I’m in the default pension plan as I feel the process of moving plans will be too time consuming | 17% |
| I don’t like the sound of a high-risk pension because my retirement fund is too important | 15% |
| I find pensions complicated or confusing | 13% |
| I don’t know what level of risk plan I’m in as I wasn’t aware there were different options | 8% |
| Other | 1% |
Source: PensionBee, March 2022. 552 respondents.
Table 2: What is the current risk level of your personal/ workplace pension plan?
| Response | Proportion of respondents |
|---|---|
| Low risk pension plan | 32% |
| Medium risk pension plan | 40% |
| High risk pension plan | 7% |
| I don’t know the risk level of my plan | 20% |
Source: PensionBee, March 2022. 552 respondents.
Table 3: As a personal/ workplace pension owner, how would you rate the risk associated with pensions? Where ‘1’ is not risky and ‘5’ is very risky?
| Response | Proportion of respondents |
|---|---|
| 1 | 21% |
| 2 | 32% |
| 3 | 26% |
| 4 | 12% |
| 5 | 9% |
Source: PensionBee, March 2022. 552 respondents.
Table 4: How would you rate the risk of cryptocurrency investing? Where ‘1’ is not risky and ‘5’ is very risky?
| Response | Proportion of respondents |
|---|---|
| 1 | 3% |
| 2 | 12% |
| 3 | 24% |
| 4 | 35% |
| 5 | 25% |
Source: PensionBee, March 2022. 552 respondents.
Table 5: How would you rate the risk of using a Buy Now Pay Later service? Where ‘1’ is not risky and ‘5’ is very risky?
| Response | Proportion of respondents |
|---|---|
| 1 | 9% |
| 2 | 21% |
| 3 | 46% |
| 4 | 16% |
| 5 | 9% |
Source: PensionBee, March 2022. 552 respondents.
Table 6: Other than a personal/ workplace pension, what investment products do you currently use? Please select all that apply.
| Response | Proportion of respondents |
|---|---|
| Cash savings account with instant access | 57% |
| Cash ISA | 42% |
| Stocks and shares ISA | 36% |
| Cryptocurrencies | 34% |
| General investment account (stocks and shares) | 24% |
| Funds (such as mutual funds) | 20% |
| Collective investments (such as OEICs) | 10% |
| Commodities (such as raw materials) | 8% |
| Derivatives (such as contracts for difference (CFDs)) | 8% |
| Other | 1% |
Source: PensionBee, March 2022. 552 respondents.
Table 7: Which statement(s) most accurately describes your view on stock market trading apps in comparison to pensions?
| Response | Proportion of respondents |
|---|---|
| I’ve never used an investment app or trading service | 27% |
| I prefer this form of investing as I have better visibility than with my pension | 21% |
| I prefer this form of investing as I can withdraw my money much quick than if it was in a pension | 19% |
| I prefer this form of investing as I feel there’s more of a thrill than investing in my pension | 18% |
| I feel this form of investing is less risky as I can control my investments more closely | 17% |
| I feel this form of investing is less risky as I’m less likely to lose money | 14% |
| I feel this form of investing is less risky than my pension as I better understand these products | 13% |
Source: PensionBee, March 2022. 552 respondents.
