Pensions Freedoms have been one of the main disruptors, bringing both opportunities and dilemmas.
According to HMRC’s Flexible payments from pensions January 2019 official statistics, by the end of 2018, as many as 1.04m of savers had cashed in £23.6 billion from their pension pots since Pension Freedoms were introduced in April 2015.
And figures for the first quarter of 2019 show that 284,000 individuals took flexible payments – the highest figure for any quarter so far.
the younger generation is also drawing more heavily on the ‘Bank of Mum and Dad’, to access their version of freedom – a home of their ownWhile those of pension age now have the opportunity to access their pension savings more easily, they may not be using these for their own personal benefit. They may even be using them in a way that is detrimental to their own financial situation.
For instance, it seems the younger generation is also drawing more heavily on the ‘Bank of Mum and Dad’, to access their version of freedom – a home of their own.
It is not difficult to see why: in its recent discussion paper, Intergenerational Differences, the Financial Conduct Authority reports that in the last 30 years, the gap between average income and house prices for first-time buyers has become a chasm, having more than doubled across all parts of the UK and even having tripled in some regions.
This is reflected in Legal and General’s 2018 Bank of Mum and Dad survey, which showed that a significant number (59 per cent) of home owners under the age of 35 had turned to family and friends for help to buy their home.
The seismic changes taking place in financial needs across generations have not gone unnoticed.
And given the FCA’s statutory objective to protect consumers, it wants to ensure its approach is changing in accordance with the changing needs of different age groups.
It has therefore taken steps to open up the debate on ‘intergenerational differences’ by seeking the views of the financial services industry, consumers and academia, on how best to meet the different and changing needs of people from different age groups.
As Christopher Woolard, executive director of strategy and competition at the FCA, says: “From baby boomers to Generation X to millennials - everyone’s financial needs and circumstances are evolving. It is clear each generation will have its own challenges.”
The challenges
One of the challenges is that people are living longer. Office for National Statistics data from November 2018 demonstrates that life expectancy has risen by two years for men and 1.4 years for women, so baby boomers (and potentially other generations) will need new financial strategies to maintain their living standards.
At the other end of the age spectrum, millennials are preoccupied with house prices and the burden of student debt, as they try to build wealth. The ‘gig economy’ is another issue, for millennials and other generations, seeking to meet financial objectives and achieve financial stability.
The FCA’s paper indicates that young people are more likely to be working part-time; in temporary employment, or on a zero-hours contract than older workers.
Talking about my generation
Reflecting on the financial changes affecting millennials, Ian Dyall, head of estate planning at Tilney Group says: “The younger generation has been particularly hard hit, as many are carrying student debt and trying to save for a deposit on property at the same time, which is particularly challenging for those living in London. They also don’t have the same retirement benefits as previous generations, such as final salary schemes.”
He adds: “It also remains to be seen whether this generation will benefit from the same level of growth in property values as previous generations. You could say that they have more problems than other generations.”
But the generation in the middle, often referred to as Generation X also has its struggles, being buffeted by financial challenges from both sides, as they try to help their parents with social-care needs and also give their children a good start in life.
Mr Dyall agrees that these are tough times for this group too, as he explains: “The middle generation has the extra burden of having to support their children financially at a time when they need to be saving for retirement.
"Also, their income has been squeezed since 2008; it has not kept pace with inflation.”
This means that the middle generation often cannot tend to their own financial needs, whether saving for retirement, or ensuring they have an emergency fund. They may also feel they have to use the Pension Freedoms to access pension savings, to support everyone but themselves.
The outcome is that they are vulnerable to financial shocks, as William Hunter, director, Hunter Wealth Management in Edinburgh warns: “The Bank of Mum and Dad is the world we live in now and some people are making poor decisions about their own future for the sake of their children. They are leaving themselves short of capital and have fewer opportunities to generate income from that capital – forever, because they have given it all away.”
Every generation is vulnerable to the financial changes of the last decades and the impact on their financial needs. It could therefore be an opportune time, as Mr Woolard suggests: “…to step back, consider and understand how these needs are evolving, and challenge assumptions about consumer needs in the context of different intergenerational factors.”
Fiona Nicolson is a freelance journalist
