New data from the pension provider, Penfold, highlights the retirement savings disparity between Gen Z and Non-Gen Z generations. Penfold has analysed their database of savers and discovered that the average monthly contributions of Non-Gen Z savers are more than double those of Gen Z savers across all of Penfold’s customer types. This disparity highlights the potential challenges younger generations face in saving for retirement and the possible lack of financial education needed to understand the importance of saving for your pension from an early age.

With the state pension age in the UK set to gradually rise to 68 between 2044 and 2046, it is becoming increasingly vital for younger generations, including Gen Z, to start saving for retirement as early as possible. With this in mind, private pension provider, Penfold, has looked into Gen Z’s pension saving habits and how they can set themselves up for a secure financial future and a comfortable retirement. 

Penfold customer data reveals that whilst Gen Z is actively contributing to their pension pots, their average monthly contributions are only £98.89. Based on these contributions, they would need to save for 59 years, meaning they wouldn't retire until they were between the ages of 77 and 85. This is significantly later than the age of 65, which 18-24-year-olds believe they should be able to retire by, according to a YouGov survey.

How does Gen Z Saving Differ from Other Generations

As we delve into the financial habits of Generation Z, data from Penfold has unveiled some compelling trends and challenges that set them apart from their predecessors. 

Focusing on retirement savings, the data reveals the following:

• Gen Z prioritizes workplace pensions over private pensions: The data shows that a higher percentage of Gen Z individuals participate in workplace pensions (13.5%) compared to private pensions (8.7%). According to a study by You Gov, 41% of 18 - 24 year old are only making their employers' minimum contribution, which may leave them short when it comes to retirement.

• Significant contribution gap between Gen Z and Non-Gen Z savers: The average monthly contributions of Non-Gen Z savers are more than double those of Gen Z savers across all customer types. Whilst this will be influenced by salary differences and career stages, the average monthly contribution for Gen Z is still below what that should be saving for their age group and average salary. This suggests Gen Z’s prioritisation of pensions is less than other key life savings events such as home ownership or holidays. According to a recent survey, 58% of 18 to 24-year-olds said they would withdraw their money before retirement to spend on a large purchase they were saving for such as a house deposit or a holiday.

• Workplace pensions are more effective for Gen Z's retirement savings: The data indicates that Gen Z savers have a larger average pension pot in workplace pensions (£895.89) than in private pensions (£806.23). 

It's Getting Harder to Save for Retirement

The retirement age is rising, and many traditional pension plans are struggling to keep up with the changing economic landscape. For Gen Z, it's essential to start saving now to ensure a comfortable retirement.

Based on Penfold’s pension calculator an 18-year-old, making £18,087 a year will have to save at least £57 per month until the current age of retirement to comfortably retire. This calculation takes into account several factors, such as the individual's current age, income, and retirement goals. 

A good rule of thumb is that you might need about two-thirds of what you earned while working to be comfortable in retirement. It's impossible to know exactly what your life will look like when you want to stop working, so it can be helpful to use a rule like this just to give you a sense.

Either choose how much you earn at the moment, or how much you think you will be earning when you are settled in your career, then multiply that number by two-thirds (or 67%)

How to Save for Retirement

The beginning of 2023 saw an increase in searches by 200% for the term "how to save money" on Google, as consumers look for tips and tricks on how to keep saving despite rising costs. Here are Penfold’s tips for securing your pension pot:

1. Start saving now: Begin contributing to your pension pot as soon as possible to benefit from compound interest and government and employer top-ups.

2. Calculate How Much You Have and How Much You Need: It is also important to set realistic goals for retirement savings. By starting to save in their early twenties, Gen Z in the UK can take advantage of decades of compound interest and potentially grow their retirement savings significantly.

3. Be consistent: Make regular pension contributions, even if they vary in size due to life events. Young adults should aim to save 5% of their income each month, even if it is a small amount. 

4. Take calculated risks: Consider investing in higher-risk assets for potentially higher rewards, depending on your risk tolerance. Gen Zers can also take advantage of online resources such as articles, blogs, and forums to learn more about retirement savings and investment strategies.

5. Increase contributions: As your salary grows, put more money into your pension pot to accelerate your savings.

6. Combine pension pots: Merge multiple pensions from previous jobs for better oversight and easier management.

7. Avoid high fees: Research pension fees and choose a plan with lower charges to maximize returns. Financial professionals can provide advice on the best retirement savings options for individual circumstances and help individuals create a savings plan that works for them. 

Pete Hykin, CEO and Co-Founder at Penfold comments:

“Saving for retirement may not be a top priority for many members of Gen Z in the UK, but it is important to start as soon as possible to secure a comfortable future. By taking advantage of employer-sponsored retirement plans, setting up a personal pension or ISA, cutting back on unnecessary expenses, seeking guidance from a financial professional, and utilizing online resources, young adults can increase their retirement savings and ensure a more secure future.

It's important to remember that every little bit helps and that starting early is the best way to take advantage of compound interest. By implementing these tips, Gen Z in the UK can secure a future that is financially comfortable and allows them to enjoy their retirement years to the fullest.”