The pre-Budget hype around pensions tax relief that turned into pre-Budget warnings not to expect anything radical made for an interesting couple of weeks. I won’t dwell on the already dissected detail; I’m more interested in the direction of travel and what it means for investors.
Mr Osborne repeatedly stated that it was a Budget for the next generation, with the lifetime ISA (LISA) aimed at the under 40s. Putting the vested interests of the pensions industry aside, the LISA intends to strengthen positive sentiment towards saving for the long term, with a nod to our inherent present bias. And that’s a good thing, isn’t it?
The dominant themes from the Budget and the Financial Advice Market Review (FAMR) published in the same week are:
Let’s not forget personal responsibility (although the proposed LISA exit charges are a disincentive to investors to exercise unchecked personal freedom).
Millennials and employers are currently emerging as being the most influential groups to shape demand for options, access and information.
Although product providers and the advice market have focused almost exclusively on the baby boomer ‘opportunity’, millennials are fully fledged adults and the market should be ready. Millennials are moving into their peak spending years and now comprise over half the global workforce. As the first generation of digital natives, they’re shaping economies and will force companies in the retail investment space to change the way they do business.
Key aspects to understand about millennials:
- They’re mobile, social and ‘always on’
- Access to goods and services is more important than ownership
- They have product information, price comparisons and reviews at their fingertips via technology, so will use brands which provide low cost convenience
- Digital platforms are key to all aspects of their life. Keeping up with friends, buying goods and services and finding partners: you name it, it’s done digitally
In my last blog I argued that employers are a key conduit to investor education and advice. The March Budget reaffirmed this with an increase in tax and NI relief for employer arranged advice. But it is demographic influences (including millennials) on the employment market that are most interesting.
Millennials have a different relationship with employers than baby boomers. They’re driving organisational flexibility across global territories and expect to move rapidly between jobs. Longevity means employers must also cater for up to five generations of workers. That includes providing relevant savings benefits, which means flexible product options.
Rather than see the LISA as a threat to auto-enrolment, let’s view it as an attractive option for a large portion of the population. While it has not been designed as a workplace offering, I believe employee and employer demand will drive development of a workplace LISA-based solution.
This Budget was significant because of the groundwork it lays for the future financial wellbeing of millennials. Now, our sector must too; that means building flexible, digital solutions on technology that can adapt to the next generation’s needs.