Covid-19 stops 40% of young people saving for retirement

Millennials and Generation Z are worst-affected by pandemic financial struggles, leaving their retirement pots in jeopardy.

Coronavirus-related financial pressure means 40% of 18-to-34s have had to pay less into their pensions or stop entirely, research shows.

Lack of spare cash was the biggest reason for altering contributions, with this affecting 51% of young people, according to insurer Royal London.

The pandemic’s hit on the finances of millennials and Generation Z contrasts with those aged 35-to-54, just 16% of who ceased or cut contributions.

High levels of job losses and furloughing among millennials was likely to have played into the findings, says Steve Webb, partner at Lane, Clark and Peacock and former pensions minister.

He says:

“We’ve seen millennials losing jobs and on furlough, and that directly affects their pensions.”

However, eight in ten people (79%) say they want to resume or increase their pensions contributions again as soon as they can afford to.

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Around one in ten (11%) have already started doing this during the lockdown period, while 37% say they plan to do so within three months.

But Webb voiced concerns that the current recession could create a longer-term wider social issue of reduced pension payments, affecting savers’ financial futures.

Yesterday the United Kingdom plunged into the deepest recession since records began as the economic impact of coronavirus hit businesses.

Webb says:

“The concern is not so much lots of young people actively deciding to pay a bit less. It’s that this recession could cause scarring - having a long-term effect, then we’ve got a pension problem.”

Royal London also found that nearly one in five (18%) people have stopped or reduced contributions on other savings and investment deals due to Covid-19.

Lorna Blyth, head of investment solutions at Royal London, says: “The pandemic has put a real strain on people’s finances.

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“It’s positive to see the majority want to resume or increase contributions at some point, and it’s vital they follow through with this intention if they want to avoid long-term damage to their retirement prospects.”

A spokesperson for government workplace pensions scheme Nest adds: “We traditionally see the lowest opt-out rates among our youngest members and this trend has continued during the pandemic.

“We’ve yet to see any significant changes in member behaviours due to Covid-19, with opt-outs, cessations, and members accessing their savings at the same rate as in previous years.”

Royal London surveyed 2,000 people for the research.