Less than half of millennials are saving for retirement through pension or provident funds, with shifting perceptions by younger investors offering both opportunities and difficulties for financial services companies, according to research conducted by Old Mutual Unit Trusts.
Old Mutual’s survey suggests millennials are saving but not investing, reflecting a trend analysts say is putting increasing pressure on the fees that asset managers are able to charge.
It may also prompt consolidation within the financial services sector.
An Old Mutual Unit Trust survey of South African millennials — or those born between 1981 and 1996 — found that only 44% were investing in pension or provident funds, compared with 61% saving money in a bank account.
These conclusions fit with global surveys that have concluded millennials are good at saving but less likely to invest. A 2017 survey by 10X Investments had concluded that only 35% of 2,200 millennials surveyed were saving long term towards retirement and only 44% trusted the retirement industry.
10X Investments senior investment analyst Chris Eddy said the short-term approach taken by younger investors was counterintuitive as they should be investing in riskier assets that offered higher rewards over the long term.
Eddy said millennial investors were more savvy and aware of fee structures, which was putting pressure on the ability of asset managers to charge high fees. “Marginal businesses are becoming less sustainable and there is a push towards passive management as opposed to active management, which is perceived to be cheaper,” he said.
The saving strategies of millennials were less likely to allow for compounding returns of savings, said Old Mutual Investment Group MD Khaya Gobodo.
“In SA, there is an existing shortfall in retirement savings, which in itself is a significant opportunity for the financial services industry.”
South Africans are consistently ranked as being among the worst savers and most indebted consumers in the world, with the Reserve Bank saying in its June quarterly bulletin household savings rates declined to 1.3% in the first quarter of this year, from 1.5% in the final quarter of 2018.
According to Old Mutual, millennials are also less likely to spend significant time in one job, and more likely to cash in retirement savings when moving from employer to employer.