Zarah ChoudharyResearch from Standard Life, part of Phoenix Group, has identified high levels of retirement apprehension among Gen X – those in their mid-40s to late 50s today – who have been caught in the gap between two pension systems.
The Retirement Voice 2024 report found that Gen X were more negative about their retirement prospects, with 54% worried their finances would not last, compared with 31% of older Baby Boomers.
Similarly, 45% said they expected to be worse off in retirement, compared to 39% of Baby Boomers still working and 29% of Millennials.
Gen X was the group most likely to be planning around pension alternatives, with 17% looking to use an inheritance, and 9% the property they currently live in to fund retirement.
38% of Gen X said they felt positive about their current financial position compared to 56% of Baby Boomers and 48% of Millennials.
Defined benefit (DB) pensions were in steady decline around the millennium when Gen X were in the early parts of their working lives.
In 2000, 9.1 million people were members of a DB pension scheme, a figure which dropped to 6.8 million by 2012.
Many of those no longer eligible for DB pensions will not have taken up a DC alternative which were far less widespread prior 2012 when auto-enrolment began to slowly roll out.
This trend was confirmed by Standard Life’s research which found Baby Boomers were almost twice as likely (39%) to be members of a DB scheme compared to Gen X (22%).
Millennials had a more optimistic outlook, with almost half (45%) feeling confident they’re saving enough to have a comfortable retirement, compared to just a third (34%) of Gen X.
This may reflect changing attitudes towards the more traditional concept of retirement, with Millennials anticipating they will have longer to build up their pension as they are more likely to expect to work beyond their state pension age than Gen X (51% and 42% respectively).
Fewer Millennials (51%) also intend to rely on the state pension as a source of income in retirement than Gen X (66%), suggesting they realise they need to take responsibility for their retirement provision and recognise the pressures on the current system.
However, Millennials felt more of the squeeze on their short-term finances, with 74% adopting a more cautious attitude towards their finances because of the cost of living issues, compared to 69% of Gen X.
Mike Ambery, retirement savings director at Standard Life, part of Phoenix Group, said: “People in their 40s and 50s were caught in the gap in our pension system with many both too young or unaware of the options in order get the full benefits of either pension system.
“As they approach retirement, they’re clearly concerned about the impact this will have on their retirement lifestyle, and understandably relying on the state pension and its indexation as well as their private pension and other income sources such as property ownership to supplement their retirement.
“In some ways it’s no surprise that Baby Boomers are broadly positive about retirement given the economic tailwinds many have enjoyed but the fact Millennials are more optimistic than Gen X suggests auto-enrolment is giving many the foundations of a retirement income.
“The challenge for this younger group is more around how to build financial resilience in the short-term and the issue of getting on the property ladder.”
Standard Life calculations found that someone who began working full-time with a salary of £25,000 per year and paid the minimum monthly auto-enrolment contributions of 8% (5% employee, 3% employer) from age of 22, with no breaks, could amass a total retirement fund of £192,000 in today’s prices at the age of 66, adjusted for 2% inflation over the course of their career.
However, someone who chose to increase their contributions by 3% to a total of 11% (8% employee, 3% employer) from the age of 45 could build up a pot of £224,000 in today’s prices by the same age, £32,000 more.
Someone starting to save at the age of 45, with no prior pension savings, could build up a pot of £190,000 in real terms by raising their contributions by 10% to 18% in total (15% employee, 3% employer) – almost the same level of savings as someone who had saved at the minimum level since the age of 22.
Ambery said: “While it will always be beneficial to save into a pension from as young an age as possible, boosting your pot later in life can still make a difference and benefit from tax efficiencies in saving.
“Forecasts predict the years 2040 to 2044 will be a crisis point with the highest number of under-savers entering retirement.
“Given many Gen X will be retiring during this period, it’s especially important that those who can afford to do so, top up contributions or make one off payments even as they approach retirement as this can help improve finances stretch further and improve retirement outcomes.”
