Research has revealed an urgent need for employers to support gen X employees in enhancing their retirement savings.
Born between 1965 and 1980, gen X started work when defined benefits pensions (DB) were closing to new members. It was also pre-auto enrolment, which started in 2012, so defined contribution (DC) alternatives were not yet widespread. As a result, this age group was caught in the pension system gap.
Now research from Standard Life, part of Phoenix Group, has found that 54 percent of gen X are worried their savings for retirement won’t be sufficient.
In comparison only 31 percent of baby boomers, born between 1946 and 1964, shared this concern.
Further findings showed that 45 percent of gen X said they expected to be worse off in retirement. Among baby boomers this sentiment was expressed by 39 percent of respondents and for millennials, born between 1981 and 2000, it was just 29 percent.
A key difference between the generations appears to be that baby boomers were working when DB pensions were available and millennials have benefited from the roll out of auto-enrolment, which researchers said has given many the foundations of a retirement income.
However, many gen Xers missed out on the full benefit of either as they began work between the decline of one pension system and the rise of another.
As a result, gen X is the group most likely to be planning to use pension alternatives such as inheritance (17 percent) or the property they live in (9 percent) to finance retirement.
Gen X was also the least likely to feel positive about their current financial position, with just 38 percent of this age group feeling positive. In comparison, 56 percent of boomers and 48 percent of millennials said they felt positive about their finances.
“People in their 40s and 50s were caught in the gap in our pension system with many both too young or unaware of the options to get the full benefits of either pension system. As they approach retirement, they’re clearly concerned about the impact this will have on their retirement lifestyle, and understandably relying on the state pension and its indexation as well as their private pension and other income sources such as property ownership to supplement their retirement,” explained Mike Ambery, retirement savings director at Standard Life.
“In some ways it’s no surprise that baby boomers are broadly positive about retirement given the economic tailwinds many have enjoyed but the fact millennials are more optimistic than gen X suggests auto-enrolment is giving many the foundations of a retirement income. The challenge for this younger group is more around how to build financial resilience in the short-term and the issue of getting on the property ladder.”
However, it is not too late for gen X to save and employers can help by highlighting this, the provider said.
Increasing contributions later in life can have a significant positive impact on retirement outcomes.
Standard Life calculations show that someone who began working full-time with a salary of £25,000 per year and paid the minimum monthly auto-enrolment contributions of 8 percent (5 percent employee, 3 percent employer) from age of 22, with no breaks, could save a total retirement fund of £192,000 in today’s prices at the age of 66 (adjusted for 2 percent inflation over the life of their career).
However, someone who chose to increase their contributions by 3 percent to a total of 11 percent (8 percent employee, 3 percent employer) from the age of 45 could build up a pot of £224,000 in today’s prices by the same age, £32,000 more.
Calculations also showed that someone starting to save at the age of 45, with no prior pension savings, could build up a pot of £190,000 in real terms by raising their contributions by 10 percent to 18 percent in total (15 percent employee, 3 percent employer) – almost the same level of savings as someone who had saved at the minimum level since the age of 22.
