Millennials are facing an increasing array of challenges when it comes to saving for retirement, which could lead to a generation retiring poor, a report has warned.
The 20-page report Too poor to retire published this week (November 6) by investment management house Rathbones, stated younger generations would likely be less comfortable in retirement than their predecessors, if they can afford to retire at all.
If the current savings shortfall were to be written off without any changes to savings behaviour or stronger returns, the average retirement age in the UK would have to increase from 63 to 70, the report found.
The state pension age is currently 65 for both men and women. From 2019, it will increase to reach 66 by October 2020. And the government is planning a further increase to 67 between 2026 and 2028.
Rathbones stated younger generations will need to either work more, save more or consume less while they face both lower economic growth and investment returns overall.
The study identified several criteria—rising life expectancy, decreasing home ownership, lower investment returns and inadequate private savings—as the culprits behind the problem.
Ed Smith, head of asset allocation research at Rathbones and author of the report, said: "While it goes too far to pronounce younger generations ‘too poor to retire’, to say ‘too poor to retire at the same age as their parents’ seems fair.
"But it’s a myth that ‘millennials’ fritter their money away on avocados and turmeric lattes. The reality is they face both lower economic growth and investment returns overall and will need to save far more than their parents did in order to achieve a similar retirement pot."
He said the chronic slump in productivity growth and the prospect of lower future equity returns meant investors will need to adjust down their projections for growth in the market for consumer goods and services in developed markets.
Mr Smith said: "Cash, bonds and equities are the bedrock of pension portfolios. If they generate lower returns than in the past, pension pots will grow more slowly over workers’ lifetimes and they will need to save more.
"Allocating more to assets that should generate higher returns would help over the long run, but with higher potential returns comes a higher risk of loss. These lower prospective returns are significant, but the much bigger problem is the quantum of people who simply have very low savings to generate any return in the first place."
Auto-enrolment has helped more people onto the savings ladder but even that will not be enough to solve the growing crisis, he said.
He added: "We believe there is a great opportunity for financial services companies to find innovative ways to engage young savers, and for firms offering new technology and business services to facilitate the flexible working that would enable participation in the work force later in life."
Robert Cochran, retirement expert at Scottish Widows, warned of the additional problem that each generation was living an average of about 10 years longer than the previous one.