Millennials and Gen Z face increased pension demands due to rising costs – Moneyfarm

As the economic and societal landscape evolves, the future of pensions for Millennials and Gen Z is uncertain, according to Moneyfarm. 

The Pensions and Lifetime Savings Association’s (PLSA) Retirement Living Standards continue to rise, indicating that future retirees will require more than the current figures of £14,000 minimum, £31,300 for a moderate retirement, and £43,100 for a comfortable one, annually.

The state pension may be reduced, means-tested, or non-existent, and unlikely to align with inflation. 

Many young people are more likely to rent, with rent increasing faster than inflation, making the state pension inadequate in the future.

Carina Chambers, pensions technical expert at Moneyfarm, said: “For Millennials and Gen Z’s lucky enough to own their own homes by retirement age, I think we will see rooms being rented out to lodgers becoming far more the norm in a bid to help pay the bills. 

“I also think they will give more serious consideration to downsizing to a less expensive area than probably today’s Baby Boomers have done.” 

Chambers added that the trend of ‘micro-dosing retirement’, taking career breaks for personal or health reasons, can impact pension savings due to paused contributions. 

Many will also face financial strains from living expenses on single incomes.

Chambers added: “Millennials will get to retirement with a very different cost structure to today’s retirees, and this is an issue young people, policy makers and pension advisors alike would be wise to examine.

“The fact is, the size of the pension pot needed during retirement for today’s 18- to 45-year-olds will be considerably larger than in previous generations due to increased life expectancy, rising living costs and the different shape of lifestyle they aspire to lead.” 

She said: “This means that today’s younger generations must be more proactive and strategic in addressing the unique challenges they face. 

“By doing so, they can ensure a more secure and comfortable retirement, despite the evolving financial landscape.

“Investing in a workplace or private pension is therefore still critical, and ignoring, or not contributing to one would be a massive mistake.”

She added: “Pensions will still be fit for purpose but the goal posts will have changed. 

“Young people will need to plan with far more precision and be prepared to contribute far more heavily than any previous generation, because it is going to fall much more on the individual to financially support themselves than ever before.”