When you are between twenty and thirty you have many projects in mind and retirement is not usually part of it. Understandable, but not desirable. In fact, the generation of millennials will sooner or later have to deal with the (miserable) reality of public welfare.
Censis estimates that 65% of today's young employed employees in Italy, i.e. two out of three, will have a pension under one thousand euros, albeit with average career advancements comparable to those of the generations that preceded them, considering the lower replacement rates. And the forecast concerns the "luckiest", i.e. the 3,4 million young people today well integrated into the labor market, with standard contracts. Then there are another 890 young people who are self-employed or with collaboration contracts and almost 2,3 million young people who neither study nor work, who will have even fewer.
The issue certainly does not only concern Italy, but most of the Western world. However, millennials (that is, people aged between 20 and 35 today) are anything but unprepared. According to a recent survey by Charles Schwab, the number one financial concern of this generation is life after work. More than half are in fact convinced that their pension will not exceed 50% of their earned income.
Few concrete actions
However, if on the one hand young people are aware of the fact that they will not be able to count on the same social security treatment reserved for their parents (the so-called baby boomers), on the other they show great distrust of their ability to build a spare pension.
A recent study by Wells Fargo claims that 41% of millennials have not yet started saving for retirement. 64% of these say they don't earn enough to be able to afford to give up part of their salary today for something 40 years from now. And, according to the analysis, the percentages increase if only women are taken into consideration. In Italy, according to Covip data, only 16% of the workforce under the age of 35 is enrolled in a supplementary pension scheme.
The most precious resource: time
Yet, not all seems to be lost. Being able to set aside even a small part of your income from an early age can make all the difference. "In reality, millennials save, even those with fewer resources, but they do it with other goals, above all, the house, and often through inefficient tools, such as simply leaving the money in the bank," says Tony Stenning, investment manager pension plans of BlackRock, recently interviewed by Morningstar. “The real problem is that they don't rely on the only thing they can count on: time. As Einstein said, we need to exploit the strength of compound interest, even if the initial sum is minimal”. And then, the fact that you have 30 or 40 years of time at your disposal means you don't have to worry too much about market volatility. “Furthermore, those who can, should absolutely take advantage of those products that also offer the employer's contribution (in Italy, the contractual pension funds, Ed.),” comments Stenning. “That plus the tax rebates are real 'gifts' that shouldn't be renounced”.
How much should you save?
In recent years, a lot of research has been carried out on how much young people should save in order to ensure a decent life after work. The more "optimistic" ones speak of 7% of their salary, others indicate much higher figures. For example, the American financial portal NerdWallet recently published an analysis according to which a 40.000-year-old worker with an annual salary of $22 should save 5% of his salary, assuming an average annual return on his investments of 2% and an increase average of their salary by XNUMX% each year.
“It's a really high percentage. At 25, it's nearly impossible, and goals like that can be scary,” commented David Blanchett, head of pension research at Morningstar Investment Management. According to the analyst, taking into account the employer's contribution and assuming medium-low returns, a young person in the same situation could achieve the same objectives by saving 14% of their income. “Which is certainly far more than what millennials are currently saving, considering that the median of the group is 3%,” explains Blanchett.
Now, in the United States, the public pension accounts for about a third, sometimes less, than the retirement income. Ergo, savings percentages in Europe should be (slightly) revised downwards. However, the general approach is the same: the sooner you start, the better.
The tools available
Anyone looking for a financial vehicle specifically designed to supplement the public pension has three choices ahead of them: negotiated pension fund, open pension fund or Pip (Individual Pension Plan).
The negotiating funds are established on the basis of agreements between trade union organizations and business organizations in specific sectors: accession to these funds is reserved for specific categories. The main advantage of this instrument, as indicated above, is that the employer is obliged to pay a contribution to the supplementary pension scheme to which the employee has joined. This makes it possible to increase payments and, other things being equal, to obtain a higher supplementary pension.
Open funds are supplementary pension schemes set up by banks, insurance companies, asset management companies and investment firms. They can be for individual membership, on the initiative of the individual, or collective (the company signs a contract with an open pension fund for its employees). In the case of individual membership, the member does not benefit from the employer's contribution, in the case of collective membership, on the other hand, he can take advantage of this advantage.
Finally, the Pips are supplementary pension schemes set up by insurance companies. Membership is always of an individual nature. Anyone can join, even housewives and students who don't have social security positions open with the public system. In general, Pips are more flexible but also much more expensive.
