The conversation around rising living costs and financial wellbeing or lack thereof stemmed from the Pandemic but whilst the spread of Covid has diminished, financial insecurity is on the up. Given this, we’ve seen an emerging trend in conversations around pensions based on offering young workers the option to opt out of their workplace pension schemes.
“That will only end in tears and long-term hardship,” said Junaid Afzal, commercial director at Haven Financial Planning.
“It’s not about taking draconian measures against Generation Z and restricting freedoms like in a totalitarian state but rather, protecting their future. I’ve lost count of the number of financially successful mature clients I help on a weekly basis who stress how they wished they had used the value of time in their younger years, to make even modest pension contributions given how they multiply over the decades into a decent retirement fund in their 60s. I’ve never had to share with any of them, the staggering difference it would have made if they hadn’t missed 10 or more years of contributing. They already know. In addition to the protection, there’s also the opportunity cost foregone of free money given employer regulations on contributions and the government’s tax relief policy. In other words, for every £50 you contribute, that’s doubled by the state and your employer. Name me a scenario where you can replicate this elsewhere? You can’t! Also, not far from media headlines right now, is the real threat of poverty approaching retirement. And that’s not an exaggeration or just click bait.
“Difficult circumstances in retirement age owing to a poor pension pot can exacerbate owing to, for example, poorer health, isolation, and despondence. Looking at the long-term consequences purely from a financial wellbeing angle, where would opting out in your younger years leave you? You don’t want to be faced with only receiving a state pension in retirement, so the consequences can be severe. This is especially important given the current landscape of more young people living at home well into their thirties, the transient nature of their employment patterns, people living sicker for longer, and size of the welfare state on the demise.
“This may sound harsh but it’s also a strong reality check. We need to future proof younger generations of workers. This also educates them, so providing the opportunity to become financially astute and pave the way to potential wealth in future. If we briefly analyse why auto-enrolment ever became a thing, it’s based around human behaviour. Too many people are hedonistic with money and won’t actively save for retirement unless they are given the catalyst to do so.
“Opting out isn’t about freedom. It’s about making a really damaging financial decision for the future of your welfare.
“And for those who genuinely struggle to contribute in their early working life, advice on a rethink of the structure of contributions is the best way forward. For example, starting small, the offer of financial counselling where appropriate and pensions education.”
For more information and advice, contact:
Junaid Afzal, DipPFS & ACA Qualified Accountant, Commercial Director at Haven Financial Planning
