Millennials are finally going to get a break from a retirement system that has been rigged against them for decades
- There has been a seismic reversal in retirement saving patterns in the UK.
- In 2012, fewer than half of Brits were able to save for retirement.
- Now 71.4% are enrolled in a pension plan of some kind, thanks to a new law that came into full effect this year.
- This is going to completely change the way Millennials think about saving, the markets, and building wealth.
LONDON - In 2012, fewer than half of British workers were enrolled in any kind of retirement savings or pension plan.
Today, the number is at 71.4% and growing, thanks to a new law that finally came into full effect this year, which requires all UK employers to automatically enrol their staff in pension savings plans.
The law is likely to radically alter the way British people think about personal wealth and their ability to save for retirement. It is also likely to make them pay a lot more attention to the stock and bond markets, much like the way Americans do now. (The US has a much weaker version of the law.)
As this chart - published today by the Office for National Statistics - shows, by 2012 British people were mostly not saving for their own retirements. A solid majority of workers were not in a pension plan, and thus reliant only on state pension provision - about £125 ($168) per week.
In addition, "defined benefit plans" - the luxurious retirement plans enjoyed by public employees and workers in large corporations that guarantee a percentage of your salary for life - were disappearing. Only 28.2% of workers have a defined benefit plan today. In the 1960s, most pension plans were of the "defined benefit" type.
The axing of defined contribution plans stripped billions in wealth from the generation of workers that began their careers in the 1990s. According to a calculation by Business Insider, millennial workers lost up to £36 billion per year in compensation because of it.
The automatic enrollment law now means that at virtually all companies, all employees are enrolled in some kind of pension or retirement savings plan. Currently, companies are required to put 2% of your salary into a private pension plan and the company will match that with a 3% contribution of their own. Next year, the contribution rates will rise to 3% and 5% respectively.
This chart shows the rapid increase in the proportion of people with defined contribution pension plans, also from the ONS:
It means millions of people will begin receiving pension statements showing the progress of the money they have invested. Most of those statements will follow the rise and fall of the markets - something British people don't often do with enthusiasm. They will also be asked to choose investments - likely leading to a large influx of UK cash into ETF-type mutual funds and indexes.
Now, that loss of wealth in the '90s will begin to be reversed, creating a new generation of workers - millennials, largely - for whom building wealth for retirement seems completely normal.