Majority of pension contributions made by Gen X

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Majority of pension contributions made by Gen X

People aged 43 to 54 – dubbed ‘Generation X’ – account for a large amount of UK personal pension contributions but are still not saving enough for their retirement, according to research.

Data from Salisbury House Wealth, obtained from HMRC through a Freedom of Information request, showed this age group made 43 per cent (£3.7bn) of total contributions in the 2015/16 tax year – the latest for which figures are available.

Salisbury House stated the figure was remarkably high considering the relatively small size of the age group of 3.2m people, but it was still only 37 per cent of what they need in their private pension, the adviser warned.

Baby boomers contributed the second largest amount to personal pensions at £3.2bn, or 37 per cent of all personal pension contributions made in the year. Millennials contributed £1.6bn, or 19 per cent of the UK total over the same period, according to the data.

The £3.7bn contributed by Gen X represented an increase of 14 per cent on the previous year.

According to Salisbury House this reflected how people have to accelerate the amount they pay into their personal pensions as they near retirement age and for some may be part of efforts to compensate for under investment in previous years.

According to ONS’ Wealth & Assets Survey, published in November 2018, the average private pension wealth of Generation X was approximately £70,400.

However, they should have saved £187,400 on average by 2019 to retire comfortably, according to Salisbury.

Calculations are based on recommendations by Which? that an annual income of £19,000 is needed for a basic retirement. For someone aged 42 they should have saved £147,000 by 2019, and for age 54, £228,000 by 2019, the IFA firm noted.

Tim Holmes, managing director of Salisbury House Wealth, said: "Despite Generation X contributing 40p for every £1 paid into pensions, many of these people will still be facing a shortfall when they retire.

"Those people approaching retirement age in particular may need to make bigger contributions than they are currently making.

"This is especially true if contributing to a pension was not a priority in their early adulthood. But it is never too late to start saving into your pension pot. There is a wealth of options available for savers planning for retirement, with different risk profiles for those playing catch up."

Dean Mullaly, managing director at Mark Dean Wealth Management, said whilst it was encouraging people were paying into their pension pots, he was not surprised there was a shortfall in the amount that should have been saved.

He said: "Those aged 40 to 50 are at their highest earning capacity so will be putting more in their pension, but they will still have other pressures like  bringing up a family and paying a mortgage.

"So it’s not surprising they have only paid about a third of the suggested pension sum. I would say that’s the case for most age groups. That’s why people are having to look at other investments like venture capital trusts if they wish to retire early."

Fiona Tait, technical director at Intelligent Pensions, said: "In many ways the figures are unsurprising, both because 43-50 is the age at which retirement becomes real to most people and because affordability tends to improve when children grow up and start earning for themselves.

"It is also around the start of this age group when we advise people to change their focus from 'how much they can put in to their pension' to 'how much they want out'.

"This tends to drive increased savings as people are surprised to realise how long they may live in retirement and how much it will cost them to provide an income that lasts long enough."

She added: "It is of course a good idea to start saving as early as possible since it is these contributions that are invested for the longest and should provide the best growth within the pension plan.

"Automatic enrolment will help with this however the minimum contribution rate will still only be 8 per cent of band earnings this year and for most people that provides a start but not enough to fund a comfortable retirement."