Cryptocurrency ‘rewrites the retirement rulebook’ as workers shun pension contributions
Cryptocurrency: Expert on how financial system is being 'remade'
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Cryptocurrency investment has been focused on in recent years as digital assets such as Bitcoin and Dogecoin have seen their prices skyrocket. While cryptocurrency is often seen as a volatile and controversial asset class, it nonetheless appears to be favoured by a new generation who are prepared to ignore their pensions for long term planning.
Cryptocurrency a bigger draw than pensions
Recently, NerdWallet surveyed 2,000 nationally representative UK adults about their thoughts on pensions. The results were broken down by age, gender, region and whether respondents had a pension.
The results showed almost a third (31 percent) of young people aged between 18 to 24 years old would rather invest in cryptocurrency than save into a traditional workplace or personal pension. This is despite the fact that pensions can offer advantages such as pension tax relief and employer contributions, and the extremely high risks often associated with investing in cryptocurrency.
Paradoxically, while there appears to be a strong appetite among young adults to invest in cryptocurrency, over a quarter of young adults (26 percent) said that they are reluctant to save into a pension because of the risks involved. NerdWallet suggested this showed there is a lack of understanding of the risks associated with both, and the different levels of consumer protection.
While it is understandable that younger savers are willing to explore cryptocurrency investment, they appear not to be completely put off by other forms of traditional long term planning. Over a third of young people think it is more important to invest in stocks and shares ISAs (36 percent) or cash ISAs (35 percent) than to contribute to a pension or sort out their finances for retirement. Despite this, many young workers have decided to either reduce (23 percent) or completely opt out of their workplace pension (28 percent).
When examining young workers’ attitude to retirement however, the lack of pension contributions becomes clearer. The same research looked at where retirement planning ranked among other financial priorities.
One in three (34 percent) young people said that it would be more important for them to pay off a mortgage early than to start saving into a pension, with 34 percent simply saying they would rather spend the money they have today than think about saving for tomorrow, while 30 percent said that they do not believe that they could afford to make regular pension contributions due to a lack of disposable income.
Richard Eagling, Senior Pensions Expert at NerdWallet, commented: “The younger generation seem to be re-writing the retirement rulebook, with cryptocurrency a bigger draw than pensions for almost a third of young adults. Our survey shows that many youngsters are in danger of overlooking the unique advantages that pensions offer, in pursuit of the thrill of higher risk and potentially higher reward investments such as cryptocurrency.
“At the same time, a significant number of 18-24 year olds are not engaging with retirement planning at all, or prioritising other financial goals. It is vital that young adults not only take steps to save for their retirement as early as possible, but also understand which products are most likely to give them the best chance of a comfortable retirement.”
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How will the retirement industry react?
While cryptocurrency may prove to be tempting for investors at the moment, Mr Eagling expressed doubt on whether they’d be welcomed by pension funds themselves.
“Investment sectors are no doubt keeping a close eye on young people’s interest in cryptocurrencies to understand why they resonate with them,” he said.
“However, the lack of regulation and high volatility of digital currencies, means holding cryptocurrency is very unlikely to be an option for your pension anytime soon. What the pensions industry needs to do is try to better engage with younger people and educate them about the benefits of a pension and the high risks of investing in cryptocurrencies.”
However, other financial experts believe demand from pensioners and would-be retirees may force industry change.
In March 2021, Dacxi, the digital asset exchange, announced it was intending to open up pension routes towards the end of 2021.
Speaking with Express.co.uk at the time, Katharine Wooler, the Managing Director of Dacxi said she anticipated high demand “from pension investors underwhelmed by current returns and keen to diversify a small proportion of their portfolio into reputable blue-chip cryptocurrencies such as Bitcoin, Ethereum and Litecoin.”
Additionally, Rico Cachucho, a Partner at Hoxton Capital Management, said: “It is just a matter of time until crypto assets become a greater part of the pension landscape, and the wait is not too far away.
“Investment consultants, the gatekeepers that advise pension schemes on where to invest billions of pounds of assets, have begun taking a closer look at bitcoin following its recent surge in value.
“Many have also seen a correlation in the influx of queries from clients who have been watching its rise from the side lines.”
All this demand appears to have caught the eye of the FCA, which in recent weeks shared plans to tackle investment harm and educate investors. Within a three year strategy, the regulator aims to enable consumers to make effective investment decisions.
The FCA explained: “We want to see a consumer investment market in which consumers can invest with confidence, understanding the risks they are taking and the regulatory protections provided.
“We do not want to restrict consumers if they want to invest, but we do want them to be able to access and identify investments that suit their circumstances and attitude to risk. Key to this is ensuring that consumers can get the advice or support they need, that they only access higher risk investments knowingly and that they are protected from scams.
“When things go wrong, as they sometimes will, we want consumers to know how to seek compensation and for the cost of redress to be met by firms in a fairer and more sustainable way.”
interactive investor welcomed these developments as Myron Jobson, a Personal Finance Campaigner, warned young people are facing particularly high risks.
Mr Jobson concluded: “The FCA’s new strategy comes at a time when many people have dipped a toe in the world of investments for the first time – perhaps because they have had more time to consider how to make their money work harder for them in the low savings rates environment during the months of lockdown.
“The noise around GameStop and the budding popularity of cryptocurrencies has raised concerns over investment risk: do consumers truly understand the level of risk their investments are exposing them to?
“There is a particular concern over the investment habits among young people. A recent poll by interactive investor revealed that 45 percent of young investors aged 18-29 say their first ever investment was in cryptocurrency, and an alarming number are funding this through a cocktail of credit cards, student loans, and other loans.”
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