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Retirement Updated: 04 Jan 2021

Three out of four millennials say the pension system needs to change

Nearly half of Spanish millennials (the generation born between 1978 and 1999) think that when they retire there will be no social security pension waiting for them, according to the BBVA pension institute's ninth annual survey. This helps to explain why three quarters (76%) of millennials believe the pension system needs a rethink. Only one in six respondents had started saving for retirement. Of those few, most use individual pension plans.

The survey was conducted from September 16 to October 15 on a representative sample of 3,085 interviews with residents in Spain born between 1978 and 1999, the “millennial” generation.

The survey shows that millennials know that saving is important. More than half (54%) managed to save during the March lockdown. About 40% managed to save after the lockdown. Approximately one in two say that after experiencing the pandemic they are more inclined to save than to spend. However, only about a third of respondents (35%) regularly save a part of their monthly income, generally using traditional products (accounts, passbooks and deposits).

Fewer than one fifth of respondents had begun saving for retirement (17%), yet six out of ten (63%) respondents who had not yet saved said it is wise to do so, starting at about age 38. Of the few who have begun saving for retirement, 48% use individual pension plans. Two thirds of this group think it would be wrong to curtail tax breaks on these savings products.

The retirement horizon is still far off for millennials. Almost half (48%) had not thought about when they would like to retire. The other half said they would like to retire as soon as possible and certainly before turning 65.

Millennials are well aware of the difficulties facing the pension system: two thirds (68%) said the social security shortfall will increase due to long life expectancy; only one in two (53%) were confident that, on retirement, they would be getting a social security pension. Given these expectations, it is unsurprising that three quarters (76%) think the pension system needs reform. Of these respondents, four out of ten (41%) believe the changes should be far-reaching.

Elisa Chuliá, member of the Expert Forum of the BBVA Pensions Institute, presented the conclusions of the survey on 'millennials' facing retirement.

New pension calculation method

Among the range of options to reduce pension expenditure, 41% of respondents preferred a new calculation method: each pensioner should be paid on the basis of contributions during his or her working life following the logic of notional “personal accounts.” When the three options available to respondents are added up, the “new calculation” option remains in first place (ticked by 70% of respondents). This preference might stem from the belief that the lifelong total pension paid to a retiree falls short of their lifelong total of contributions paid into social security while they were still in work. That belief is mistaken, however. This is the misperception of 61% of respondents—about five times as many as those who think, correctly, that on average pensioners are paid more than their lifelong contribution.

More than a third of respondents (36%) believe the current pension system is ideal. 50% think a better model would be basic social security pension rounded out by private savings, whether sponsored by employers (occupational pension) or signed up and funded by a private individual (individual pension).

Luis Vadillo, director of the BBVA Pensions Institute.