Defined Benefit  

Millennials and Gen X will never match baby boomer pensions

Andrew Hood, senior research economist at the Institute for Fiscal Studies, said what politicians need to tackle is in their early 30s, less than 10 per cent of private sector employees born in the early 1980s are members of a defined benefit scheme compared with nearly 40 per cent of those born in the 1960s.

But nearly 70 per cent of employees born in the early 1980s are now (in their early 30s) members of a workplace pension scheme (defined benefit or defined contribution), compared with less than 55 per cent of employees born in the 1970s at the same age, he added.

He added in the long term, the single tier state pension introduced in April 2016 will be less generous to just about everyone (except the self-employed) than the system it is replacing.

Colin Wilson, president of the Institute and Faculty of Actuaries, said: “We believe intergenerational fairness is at the very core of the debate around pensions. The ultimate goal is to create a framework that provides a financially sustainable life in retirement for all. But the answer is not straightforward. 

“In order to ensure that everyone benefits from the system, there is a clear need to review current policies like the pensions triple-lock, the state pension age and the transition from defined benefit to defined contribution schemes, through the lens of intergenerational fairness.”

Commenting on the plight of the millennials, Darren Cooke, director of intermediary firm Red Circle Planning, said: "The younger generations have a tougher time of it: fewer active defined benefit schemes open and a less generous state second pension as well as a higher pension age for both private and state provision."

Malcolm McLean, senior consultant at Barnett Waddingham, said: "There is no doubt that overall pension policy has tended to favour the old at the expense of the young in recent years. 

"This not to say that all pensioner benefits should be cut to the bone but more attention should be given to the needs of the young in both social and housing policy than has happened previously."

Ben Simpson, head of wealth management at Menzies LLP, said recent reductions in the lifetime allowance and annual allowance will materially impact the ability of the younger generation to fund their pensions sufficiently to match the benefits enjoyed by some of the older generation.

He said: "That is of course assuming that the younger generation actually had sufficient surplus income to make large pension contributions.”

stephanie.hawthorne@ft.com