Research into financial knowledge reveals major generational differences in attitudes towards financial priorities and money management

Recent research conducted by Barnett Waddingham has highlighted that UK employees of all ages are suffering from major gaps in financial knowledge.

The survey of over 500 respondents, found that more than 70 per cent of millennials and generation X employees feel that they don’t understand pension investments.

The research also found that nearly half (49 per cent) of all employees would prefer face to face financial advice, indicating a major need for workplace financial education to improve employees’ knowledge about their pension planning options, the financial opportunities open to them and their overall wellbeing.

Julia Turney, head of platform and engagement at Barnett Waddingham, sees the gap in financial knowledge as being an issue affecting all age groups in the workforce. “Our research shows that early financial education is critical– the earlier someone starts to save, the easier it should be,” she said.

“However, age and affluence play a significant role when it comes to saving for the future. Those who earn more might be able to afford to seek financial advice, but what about those who cannot afford it? Will this group be left to find out things for themselves and make mistakes along the way? Or, will employers step in to provide more financial education, recognising the significance of personal financial health in overall employee wellbeing? We believe this is the way it should be.”

Millennials

Nearly half (44 per cent) of those aged between 18 to 29 feel that saving for a house is their biggest financial priority. A lack of focus on saving for a pension could be due to the fact that nearly three quarters (71 per cent) of those aged 18-29 feel they do not understand their pension investment. A lack of understanding peaks among those earning less than £20k a year, with a worrying 96 per cent feeling this way. However, despite this limited financial awareness, a staggering 89 per cent of millennials would contribute more to a pension if they could afford to.

Generation X

Even though saving for retirement should be a key focus for those aged 30 to 49, it is currently the smallest concern for this age group. In fact, paying off the mortgage is a bigger concern for this age group, with 42 per cent admitting that this keeps them up at night. Worryingly, none of those surveyed who earn less than £20k feel that they understand pensions, in comparison to nearly half (44 per cent) of those earning more than £75k, who feel they have an adequate understanding.

Baby Boomers

As expected, those aged 50 or over are the most aware of their financial health and retirement options. Over half (52 per cent) feel that retirement is of most financial importance to them and 43 per cent say the financial pressure of retirement keeps them awake at night. Interestingly, over half of employees (57 per cent) see themselves only gradually phasing into retirement, and would like to go part-time with the same employer.

Barnett Waddingham’s Turney added: “There are encouraging signs that employers are investing into the overall wellbeing of their employees, spending time to ensure they have financial wellness and rectifying any financial issues that may arise. Supporting employees in this way should result in happier and less stressed individuals, which can only be good for the employer.”

Post-retirement options

Barnett Waddingham’s research also revealed that 94 per cent of baby boomers who earn between £20,000 and £39,999 are not aware of the retirement choices available to them. According to Clifton Asset Management and Pensionledfunding.com, business owners aged over 55 have cashed in around £400million of their pensions to fund new business ventures.

Business owners over 55 have always had the ability to take their tax free cash lump sum, but since the Government introduced pension freedoms in April 2015, more business owners are choosing this route. But for some owners, using the new freedoms has resulted in a large tax bill, significantly contributing to the £900 million in pension freedom tax receipts expected to be collected by the government.

This follows news from the Association of British Insurers (ABI) last month that the over 55s cashed in almost £6 billion of their pensions in the first twelve months after pension freedoms were introduced.

“This last year we have seen a marked rise in entrepreneurs aged over 50 looking to use their pensions to either start a business, or fund an established enterprise. However, the government’s pension changes are not a giveaway for all business owners – particularly for those that wish to mobilise tens of thousands of pounds from their pension to fund their business,” Adam Tavener, Chairman of Clifton Asset Management and Pensionledfunding.com commented.

“Also, many business owners have rushed into using pension freedom to cash in their pension fund, and taken little or no external advice. Taking this approach has even led to financial disaster, where some business owners invested in unsustainable businesses that could not provide a return on the pension investment. This ultimately resulted in the failure of the business and a loss of part, or all, of the pension.”