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For decades, pensions have been the bedrock of financial security, offering a dependable foundation for retirement. Fast forward to today, and the pensions industry now faces a pivotal challenge: staying relevant to younger generations. With evolving financial priorities, emerging investment alternatives, and a growing scepticism toward traditional financial institutions, Gen Z and millennials are redefining the retirement-saving narrative.
In this blog, our resident Gen Z and RiskTech expert, Michael Hayward, shares how adopting enterprise risk management (ERM) software, such as RiskSmart, can help pension providers adapt to these shifts, evolve their risk culture, and win over younger savers and regulators alike.
Shaping pensions for the next generation
The question is not whether pension funds will persist, but how they can adapt to remain indispensable to the retirement strategies of the next generations. Funds that get with the times have a golden opportunity to connect with a whole new audience. But those that dig their heels in? Well, they might be facing an early retirement - no pun intended.
In this blog, we explore how pensions can keep up with the generations that are disrupting every market under the sun and how Enterprise Risk Management software can help them adapt.
Opting out: A generational perspective
A recent study conducted by Barnett Waddingham reveals a concerning trend:
- 26% of workers have opted out of their workplace pensions at some point.
- Among 25 to 30-year-olds, this rises to 36%.
- For 18 to 24-year-olds, the number soars to 55%.
Why?
The reasons vary.
From the rising cost of living and stagnant wages to the appeal of alternative investment vehicles such as cryptocurrencies, non-fungible tokens (NFTs), equities, and other alternative investments. For many, the idea of saving money until their sixties seems incompatible with their current financial realities.
Younger generations are embracing a more agile approach to wealth building, favouring investments that promise flexibility and higher returns - even if they come with greater risk.
For pension providers, this shift challenges the appeal of traditional defined-contribution schemes, which often lack the immediacy and transparency younger savers demand.
The financial realities of Gen Z
Soaring global inflation means paying for rent and groceries can feel like a juggling act.
Dr Michael Harrison, senior lecturer in economics and finance at the University of East London, explains:
“Gen Z has never experienced a ‘normal’ financial sector. They’ve grown up with persistently low real interest rates and view that as the norm. However, today’s high inflation and negative real returns on investments make it hard for them to trust traditional financial products, including pensions.”
How can pension providers win the hearts of Generation Z?
So, how can pension providers make pensions a more enticing offer for younger generations, while still offering security and financial clarity?
1. Embrace a digital-first approach
Younger generations have grown up in a world of apps, online platforms, and instant access to information. Pension providers must meet them where they are by offering intuitive, mobile-first solutions. Platforms like PensionBee have set the benchmark with user experiences that make it easier to consolidate, track, and manage their pensions with ease.
2. Prioritise customised communication
A one-size-fits-all approach to communication no longer works. Gen Z and millennials expect personalised messaging that reflects their unique financial situations and goals. Providers should leverage data analytics to segment their audience and deliver tailored content.
3. Offer value-added services
To stand out, pension providers need to offer more than just the basics. Financial wellness programmes, retirement planning tools, and access to financial advisers can elevate the customer experience.
4. Highlight ESG and purpose-driven investment options
Environmental, social, and governance (ESG) factors are becoming increasingly important to younger investors. Gen Z is more likely to align their financial decisions with their values, seeking out investments that promote sustainability and social responsibility.
Pension providers can capitalise on this by offering ESG-aligned portfolios and transparently showcasing the impact of these investments.
Highlighting how pension funds contribute to positive change—whether through renewable energy projects or social equity initiatives—can make pensions more appealing to this values-driven demographic.
And this is where RiskSmart comes in.
How RiskSmart and PensionBee are leading the way
Enterprise Risk Management (ERM) tools, such as RiskSmart, offer a strategic advantage for pension providers seeking to meet the evolving needs of both employers and employees.
By integrating ERM into their tech ecosystem, providers can help employers proactively address risks while enhancing workforce engagement.
RiskSmart enables pension funds to navigate better challenges such as market volatility, inflation, and regulatory compliance. These solutions enhance the resilience and reliability of pension offerings - key attributes that can rebuild trust among Gen Z and millennial savers.
Moreover, ERM systems deliver enhanced transparency and robust reporting features, aligning with the younger generation’s expectations for clear, accessible, and real-time information. This transparency not only builds confidence but also underscores the relevance of pension funds in an increasingly digital and data-driven world.
Providers that embrace innovative solutions position themselves as forward-thinking and adaptable - qualities that resonate deeply with tech-savvy, younger demographics. Innovators like PensionBee have demonstrated how continuously evolving their risk management culture is an important part of setting them up for growth.
When paired with ERM tools like RiskSmart, pension providers can further enhance their offerings. RiskSmart empowers employers to address the unique challenges of engaging, appealing to and attracting younger workforces while simultaneously safeguarding the financial health of pension funds. This focus can help differentiate providers in a competitive market, enabling them to deliver tangible value that resonates with today’s savers.
Conclusion: Staying relevant in a changing world
The pensions industry stands at a crossroads. To remain relevant to future generations, providers must embrace innovation, prioritise transparency, and align their offerings with the values and behaviours of younger savers. By adopting a customer-centric approach and leveraging technology, the industry can turn challenges into opportunities, ensuring that pensions continue to play a vital role in securing financial futures.
ERM tools, such as RiskSmart, and digital-first platforms, like PensionBee, working together exemplify how innovative solutions can bridge the gap between traditional pensions and the needs of younger demographics. By embracing these advancements, pension providers can not only stay relevant but also inspire trust and confidence among Gen Z and millennials, turning potential sceptics into lifelong savers.
For more information on how RiskSmart can benefit your risk, compliance and governance team, speak to one of our RiskTech experts today.
