Only 1/4 of young savers believe they can afford to take some risk with their retirement

A new analysis from leading online pension provider PensionBee shows that only 26% of young savers (aged 18-30) feel they can afford to take some risk with their pension, even though they still have plenty years away from retirement.

In fact, only 7% of 18-30 year olds say they are currently invested in a high-risk retirement plan, despite the fact that savers at this age have the longest time horizon to recoup any losses. Most young savers, however, are placed in an equity-heavy company pension plan, which many may just not have recognized as a high risk.

PensionBee recently surveyed over 500 UK savers to understand their risk appetite across different financial products and services. When asked about the current risk level of their personal and/or occupational pension plans, nearly a third (32%) of young savers said they were on a low-risk plan, although more than half (59%) of this age group identify as those denoting a medium risk tolerance.

Motivations for young savers to stay in their current risk plan ranged from feeling that the process of switching plans would be too onerous (17%), “don’t like the sound of a high-risk plan because pensions are too important” (15%), and find pensions “too complicated or confusing” (13%). Overall, 20% of young savers admitted not knowing the risk level of their current private and/or company pension plans.

Despite some caution about high-risk pension plans, when asked to evaluate various financial products and services, the majority of young savers (32%) rated pensions as only a “2 out of 5,” with “1” being low risk and “5” being very risky ‘. When evaluating other financial products outside of retirement savings, young savers considered investing in cryptocurrency to be a much higher risk, with more than a third (35%) rating it a “4” on the scale. ‘Buy now, pay later’ schemes were also seen as riskier than annuities, with nearly half (46%) of young savers rating them a ‘3 out of 5’.

Instant access cash savings accounts and cash ISAs proved to be by far the most popular financial products among this age group, with 57% and 42% of young savers using these products, respectively. Additionally, over a quarter (27%) of young savers said they had never used stock trading or investing apps, despite their recent boom in popularity.

Romi Savova, CEO of PensionBee, commented: “Our results suggest that young savers, by and large, lack confidence when it comes to investing their savings in the stock market. Choosing a higher-risk retirement plan can seem daunting for young savers, especially if they’re just starting out in retirement savings. Although riskier assets may experience greater appreciation and depreciation in value, over the long term they are likely to offer a higher rate of growth than lower-risk assets.

It’s important for young savers to realize that short-term swings are unlikely to do lasting damage, especially for those who are at least 30 years away from retirement. Low-risk plans are typically only eligible for savers who are about to withdraw their entire pension. If we are to see the younger generation fulfilling their retirement aspirations, the pension industry needs to work together to address the risk-averse nature of young savers.” Only 1/4 of young savers believe they can afford to take some risk with their retirement

Fry Electronics Team

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