Older generations often complain that Gen Z and millennials love spending money: a flat white here, some avocado toast there, and maybe a holiday to some exotic location in between.
Of course, many younger people also face rising housing costs, stagnation in their wages and a tough jobs market.
Either way, the result is that many in their twenties and thirties are falling behind on their pension savings.
Just a third of Generation Z and millennials are on track with their pension saving, according to figures from Hargreaves Lansdown.
Meanwhile, figures from Standard Life show that putting off pension saving while you are young could leave a hole to the tune of tens of thousands of pounds in your pension pot when you come to retirement.
But what if the spending of young people could be turned into a way to supplement their pension saving?
Targeted at those under 45, although still available to older savers, Chest looks to allow people to capitalise on their spending habits for the good of their pension
This is what Chest Pensions aims to do. The platform, which launches today, is the latest to offer an app-based self-invested personal pension or Sipp, where customers can pay in whenever they like – as long as they stay within the annual limit for pension savings – and decide where their money is invested.
But it also has a unique feature to allow users to get cashback on their everyday spending, which is then diverted into their pension pot.
The sums paid in on each transaction will be small – a few pounds in most cases. However, the idea is that, as younger people have decades until retirement, the invested funds could eventually turn into something sizeable.
Ali Adam, the 34-year-old co-founder of Chest told This is Money: ‘We’ve found that young people do care about saving for retirement, despite not being able to afford to, or finding it confusing.
‘One in three Gen Z and millennials feel uncertain, anxious or worried about their retirement saving.
‘The whole ethos around what we’re doing at Chest is micro-savings made early, compounding to something that can be quite sizeable in the future and really support people with the shortfall.’
Jason Murphy, Chest’s other co-founder, said Chest was triggered by the thought: ‘What if you could take existing transactions and leverage those for the benefit of further rewards that might not otherwise exist.’
Targeted at those under 45, although still available to older savers, Chest looks to allow people to capitalise on their spending habits for the good of their pension.
Some 72 per cent of the two youngest adult generations already use cashback from reward and loyalty schemes on a monthly basis, according to data form Chest.
On average, Adam says, these young people are earning between £6 and £40 per month through cashback platforms.
‘This shows is that it’s already within the consumer mindset to look for cashback deals and to use them on a regular basis.’
Chest score: Chest offers a metric to see how well your pension saving is going compared to others in similar situations
How much could Chest users earn?
To get the cashback, Chest users need to buy e-gift cards from the platform and then make purchases using these.
Cards are offered for more than 120 well-known retailers, with cashback rates varying between one per cent and 12 per cent.
Adam said: ‘For grocery-type vendors, the average rate is between three and five per cent, for companies like Amazon, it is more like one per cent… for some of the fashion and travel companies the rate is a lot higher.’
‘We expect that £15 per month in cashback is very achievable.’
On top of its cashback deals, Chest offers games and challenges to get people into the savings habit.
These include round-ups of spending, as well as a ‘no-spend challenge’ which automatically saves a predetermined amount on days when the user doesn’t spend money.
Users of the platform are given a ‘Chest score’, creating a metric for savers to assess whether they will meet their savings targets, and how there are fairing against others at a similar stage of life.
Murphy says this aims to combat ‘presentee bias’ – focusing on your present life, rather than planning for the future – by allowing users to see if they are falling behind on their saving.
Money saved into the Chest Sipp is invested into one of the platform’s six investment options, made up of three default funds and three responsible investing funds.
Adam says the standard fund is an equity focused FTSE All-Word Index tracker, but says the platform will also be offering multi asset funds with different equity allocations.
Asset allocation within its multi-asset funds is active, Adam says, but all six available investment options are passive funds.
Chest is an appointed representative of what it says is a ‘leading asset manager’, meaning that it benefits from the FCA approval of its principal firm.
This system allows smaller firms to enter the financial services market without having to pay for FCA regulation themselves.
While Adam and Murphy, alumni of big four accountancy firms EY and PWC respectively, say they hope Chest can help young people make up for pension shortfalls, their aim is that it will become their principal pension platform.
Fees, they say, are not only ‘very competitive with the rest of the investment platform market,’ but ‘more competitive than some of our competitors.’
Savers can transfer their other Sipps to Chest, as well as their old workplace pensions from previous employment.
Adam said: ‘We’re really starting out to be the champion for this, this age group, this demographic, and we see a lot of issues in, in the general industry and challenges that.’
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