New Millennials study uncovers potential of
miss-buying LISAs for retirement saving, finds new Dunstan
Thomas nationwide study.
23
January 2017
Auto-Enrolment opt out rates set to double in last
year of enrolment.
The Financial Conduct Authority’s worst fears could be
realised if large numbers of millennials choose to buy
Lifetime ISAs (LISAs) because they see them as offering
a more flexible, and in some cases more tax efficient,
retirement savings vehicle than workplace pensions,
according to a nationwide study of 1,000 millennials
conducted in December by Opinium Research for financial
services technology business Dunstan Thomas.
Whilst 27% of millennials thought that the LISA is a
more tax efficient retirement savings vehicle than an
Auto-Enrolled workplace pension, a further 38% were
unsure which product was more tax efficient. The need
for financial advice loomed large as a quarter (25%) of
millennials indicated that they might take out a LISA as
a retirement savings product. A total of one third (32%)
of millennials aged 23-36 anticipated taking out a LISA
from April when they come available.
A total of 20%
of millennials said they were quite or very likely to
opt out of an Auto Enrolment (AE) workplace pension
scheme when they are offered the opportunity to do so,
suggesting a near doubling of opt out rates this year as
employees of SMEs and micro businesses reach their
staging date. One can only speculate whether AE opt out
rates may spike because of the introduction of the LISA
this year.
For millennials who are saving
anything at all (81% of them), just a fifth (19%) are
making additional provisions for their retirement over
and above prescribed employer or state pension scheme
contributions. Retirement saving finds itself fourth top
savings priority for millennials; behind building ‘a
rainy-day savings fund’ for 38% and saving for a nice
holiday for 29%. While saving towards a deposit on their
first home is a saving priority for 26% of saving
millennials. Additional retirement saving only came in
ahead of saving up for ‘large household items’, for 16%
of savers, and for a new car (for 12%).
Despite
the lack of prioritisation of retirement saving,
four-fifths (82%) of older millennials aged 30-36, that
plan to build up a sizeable retirement pot, believe they
will have done so by the age of 65. Younger millennials
aged 23-29 were even more optimistic – 86% believing
that they will have addressed this need by the current
state retirement age of 65.
Millennials working
full-time and currently saving, save on average £191.33
per month. An average of £161.65 per month is put aside
by saving millennials across all socio-economic groups.
Those working part-time (up to 29 hours per week) set
aside an average of £87.42 each month. Indicative
findings* suggest that the average millennial living in
Northern Ireland saves the least of all UK regions –
just £58.32 per month, whilst in Wales they set aside
£91.34 in a typical month. However, Londoners’ savings
pots are the most bountiful with £208.52 being set aside
each month.
Older Millennials are struggling with
their savings habits as pressure on their wallets
increases in their 30s: 40% of 30-36 year olds are
either saving irregularly or not at all; while 35% of
23-29 year olds are failing to put any cash away
regularly.
Adrian Boulding, Director of
Retirement Strategy at Dunstan Thomas, explained: “Our
Millennials Study results show that there is clear
danger of the millennial generation buying the LISA for
the wrong reasons. To those of us in the industry it
might look like a highly flexible savings vehicle geared
to one of their financial goals – getting on the housing
ladder.
“But our findings indicate awareness of
the product amongst the target audience is low and they
may well decide to use the LISA to save, apparently more
flexibly, for retirement. And having done this, they may
even opt out of their workplace pension scheme which is,
in the main, a much better way to save for retirement
than a LISA because pensions enjoy matching employer
contributions.”
The Dunstan Thomas survey also
probed preferred capabilities and functionality that
millennials would most like to see in new smart
phone-ready, highly interactive apps which Dunstan
Thomas is developing for product providers. The next
generation of customer engagement tools will help
consumers make better financial choices engendering
healthier saving habits, while enabling providers to
understand and engage more deeply with their
customer-base.