Last weekend, FT Money published a piece examining the worsening finances of 20-somethings — Why millennials go on holiday instead of paying into their pension. The response has been phenomenal, sparking fierce debate among readers and generating thousands of comments, tweets, Reddit threads and even follow-up articles raging at the FT’s portrayal of millennials as Uber-loving holiday-taking thrill seekers.
Within hours of publishing the article online, it probably generated more Twitter sass and cat memes than any piece in the history of the FT. It began with a tongue-in-cheek tweet from the main @FT account, revealing one of the most startling facts in the article:
More than 10,000 people clicked through that tweet alone to read the article and the 20-somethings the piece was aimed at reacted swiftly on Twitter. Some accused the FT of being “patronising” and “out-of-touch” for not realising how difficult it is to save money when — as our piece pointed out — salaries are low and rents are high.
Others assumed the piece was chastising them for not saving enough, portraying millennials as profligate idiots rather than genuinely hard-up.
But the most controversial element of the article proved to be pensions. Readers reacted with horror to a calculation made by Rebecca Taylor, director at the Chartered Institute for Securities and Investment, that 25-year-olds would need to save £800 a month on average, for 40 years, to secure a £30,000 per year income in retirement.
In fact, the piece hit such a large nerve — even generating a follow up on BuzzFeed — we thought we should do a little more explaining of how the CISI arrived at that £800 a month figure.
Firstly, it represents the average monthly pension contribution you would need to spread across 40 years to secure an annual retirement income of £30,000 per year upon retirement. It is possible to save for the same sized pension pot by paying in less than £800 in the early years; but you would need to pay in more than £800 in later years, when your wages are likely to be higher. Another option would be to work for longer.
Many millennials reacted along the lines of “what’s the point of a pension” as they couldn’t save even a fraction of that amount:
But even small, regular payments will help. Those early payments you make when you are young will attract compound interest over time, and contribute most strongly towards the growth of the pot as a whole.
And while the £800 target was a shock to many readers (regardless of their age) a substantial proportion of your pension contributions could come from your employer, and will be boosted further by tax relief.
Workers on a full-time contract who opt into a company pension scheme will typically find that their employer will match or double their monthly pension contribution. For example, you could put in 5 per cent of your annual salary, spread across 12 monthly payments, and your employer could contribute the equivalent of 10 per cent. This is essentially “free money”.
You are also entitled to tax relief on your pension contributions. If you’re a millennial earning less than £42,385 a year, this will boost your contribution by 20 per cent. So you pay in £80 but tax relief makes this worth £100. If you’re earning more than that, you get tax relief at 40 per cent. So you pay in £60 and tax relief makes this worth £100. You would only have given this to chancellor George Osborne in tax if you hadn’t put it in your pension pot.
Unfortunately, online comments on the FT article showed that millennials are much more likely to be precariously employed members of the gig economy than have a full-time job with a good pension scheme.
24, living in London, has just quit a job on 35k/yr which just about pays the rent, but involved 60+ hours /week. Will now be doing freelance gigs at twice the hourly pay, working only half the hours . . . We have a very different rationale behind working. We can work flexible hours, we can freelance, we can start our own businesses. We can work when we want, to get what we want. For many of us, saving is not a goal worth working extra hours for. — anonymousmillennial
The self-employed can still save into a pension, and benefit from tax relief, but you won’t get the valuable employer contributions. Clearly, this is not ideal.
Millennial readers expressed frustration with how hard it is to reach a point where they’ve cleared enough debts to be able to save.
Even as someone who is earning slightly above average wages, this article hits home in a big way . . . I shouldn’t complain, and usually don’t — I’ve scrapped on below-minimum wage income throughout the recession for several years, borrowing up to my eyeballs just to get a job that will allow me to pay off my debts. Any kind of a life is good when all you’ve been preoccupied with for so long is basic survival. — Hartiganh
Some baby boomers congratulated millennials for choosing a different path.
But pensions were not the only bone of contention — FT readers complained about the impossibility of home ownership while rents and debt levels run so high.
I would love nothing more than to own my own home, but this is absolutely impossible since I pay more in student loans every month than the average mortgage payment in my area. — Ara vonPaar
It strikes me that we’re faced with the illusion of choice . . . Why not save to get on the housing ladder rather than spend 50% of my earnings on rent? They aren’t real choices in my eyes. — embarrassed pedant
Save for 6 and a half years to get 5% deposit on a 450k house in London? Who’s going to give a single 35 year old a 427k mortgage? — CountryJon
One reader, who had managed to get on the property ladder, reacted to the line in the piece that said: “Millennials are never going to put a picture of their new dining room furniture on Instagram. They probably don’t even have a dining room.”
Student debt also proved a huge talking point in the comments field, with even higher-earners feeling disheartened by their debt.
[I’m a] millennial working in financial services with a student loan. According to my P60, last year I had deductions of over £3,000 for student loans and that was at the lower rate of tuition fees. Whilst that may not sound too bad, I see my Student Loan Company statement balance is still north of £27,000 — with that in mind, it’s not difficult to empathise with why millennials like myself feel like the deck is stacked . . . I do despair at how the success of my parent’s generation comes at the cost of mine. — Theophany
So what to do about this? The piece generated a tongue-in-cheek follow-up piece from the New Statesman advising millennials on ways to generate extra cash. Eleanor Margolis, a columnist at the magazine, came up with a satirical list of ways hard-up young people can earn money — including “marrying a Kardashian”. Her point was that millennials aren’t just frivolous and stupid, but genuinely unable to save.
Others pointed out that the decline in young people voting has led politicians to ignore their plight.
For our part, the FT will continue to highlight the financial pressures facing the younger generation and we will be launching a new monthly column in FT Money called Millennial Money next week.
Finally, for all the cat memes and pointed comments, our goal of getting young people to think more about their pensions has been a worthwhile result, as one young personal finance journalist tweeted: