Pension pain for Generation X is 'national scandal'

A study among people aged 39 to 54, carried out on behalf of Dunstan Thomas among more than 2000 Britons, has shown Gen X faces a bleak future when it comes to retirement, with the loss of defined benefit schemes, a reduction in the number of advisers since the Retail Distribution Review, and financial pressures on all sides.

While the average pension savings of UK Gen X is £159,837, putting in just over £200 a month, this will not be enough to secure a comfortable retirement, based on current assumptions. 

Gen X are most likely to be in defined contribution schemes, bearing all the investment risk themselves during accumulation, and face the prospect of having to rely on whatever state pension benefit awaits them down the line.

Despite all of this, and in spite of the fact that 55 per cent admitted they were not saving enough to maintain their lifestyle in retirement, with 22 per cent claiming to have no pension whatsoever, a significant proportion had never heard of pension freedoms and had little idea what to do with their money in retirement.

Some 38 per cent said they did not want to think about retirement "because it worries me so much" and 42 per cent were hoping to receive an inheritance before they retire.

Pensions veteran Adrian Boulding, director of retirement strategy for Dunstan Thomas, said: "It’s worrying that 22 per cent of Gen Xers claim to have no pension whatsoever.

"Those that have pensions are saving about a quarter of what they need to be to fund even a moderate retirement lifestyle and only 5 per cent of this group look to be anywhere near on track.

"The only surprise then is that this is not already a national scandal as one in four Gen X look set to rely totally on the state pension for income in retirement and nearly two thirds resign themselves to working longer than planned or cutting their living costs substantially in retirement."

Yet even with these headwinds facing them, 84 per cent of respondents said they make key financial decisions alone or together with their partner.

Some 21 per cent do go online for supporting financial information from sites such as MoneySupermarket, but only 8 per cent consult a financial adviser.

When broken down by region, the percentage of those getting professional financial advice rises to 13 per cent for Gen Xers resident in London, but the figures by Dunstan Thomas paint a worrying picture for the 'squeezed middle', who not only tend to be supporting children through school but also, increasingly, are taking on some element of care (financial or otherwise) for their ageing parents.

The only surprise then is that this is not already a national scandal as one in four Gen X look set to rely totally on the State Pension for income in retirement - Adrian Boulding

The survey also revealed a persistent gender divide when it comes to Generation X. While the average UK pension savings pot is worth £186,611 for Gen X men, their female counterparts have just £117,854 in pension savings.

In fact, according to an October 2019 study by the Institute and Faculty of Actuaries, building on the Pensions and Lifetime Savings Association’s (PLSA) Retirement Living Standards research, people on average incomes need to set aside £799 a month to afford a moderate retirement lifestyle.

Dunstan Thomas's study found only 5 per cent of all Gen Xers were on track for this by saving more than £750 a month; generally most were only putting the minimum contribution into their pensions, with 29 per cent admitting they have never paid more than the original minimum default amount. 

Moreover, 29 per cent of those aged 51 to 54 - just a few years away from the age at which, under the 2015 pension freedoms, they can access their pension money - are still paying in less than 5 per cent of their income into their DC pension. 

Mr Boulding suggested there was a 'perfect storm' approaching when it comes to the financial futures of Generation X.

He said many things had come together to have a detrimental impact on the ability of Gen X to secure a healthy pension pot.

He cited: "The closure of large swathes of the defined benefit market; auto-enrolment coming too late for older Gen X; changing working practices and demographics; and lower levels of access to financial advice after the Retail Distribution Review.

"All these are major factors influencing Gen X's retirement saving levels. The result is that approximately only 5 per cent of 39-54-year olds are on track to fully fund even moderate retirement lifestyles."

The study also asked what DC workplace schemes could do to motivate them to pay more into their pension. A mere 5 per cent said they would be stimulated by a financial adviser recommendation. More than a quarter said a pay rise would trigger a rise in contributions. 

Last month, FTAdviser reported on findings from digital wealth manager Moneyfarm, which similarly showed that, when it comes to wealth planning, those aged 40 to 50 need to be making the most of their savings now to achieve their later-life goals.

According to the research, which was carried out for Moneyfarm by Censuswide among 2,109 respondents aged 35 and over, 30 per cent admitted they had not been saving for their retirement at all.

In particular, family pressures were cited as the reason why 19 per cent of people could not save more. 

simoney.kyriakou@ft.com

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