‘Squeezed’ generation X falling behind on pension savings

Workers in their forties and fifties from generation X have left organising their pension very late, with indications they are now scrabbling to make up for lost time, as this age group accounted for the largest proportion of contributions last year

Generation X is now attempting to address this lag with a surge in savings, as they accounted for 43% of all UK pensions contributions in 2018, according to research by financial adviser Salisbury House Wealth.

It calculates that the value of contributions by generation X increased 14% to £3.7bn last year, up from £3.2bn the previous year. Total UK personal pensions savings last year totalled £8.5bn.

Baby boomers in their mid-fifties to mid-seventies accounted for 37% of all pension contributions  (£3.1bn), while millennials were responsible for 19% (£1.6bn), and those under 24 years paid just £10m into pension savings, or 0.1% of the total.

Tim Holmes, managing director at Salisbury House Wealth, said: ‘Generation X are having to pour more money into their pension pots as retirement approaches.

‘Many individuals in generation X are finding their incomes squeezed by having to pay for both younger and older dependents. As a result, pensions will likely only become a priority at the last minute.

‘The problem is that the longer you leave it before you start saving for your pension the less time your investments have to grow through the “power of compounding”.’

This is a point reflected in a discussion paper published by the Financial Conduct Authority (FCA) earlier this month on intergenerational differences, exploring the changing financial needs of consumers from different age groups.

The paper includes analysis of the ONS Wealth and Assets Survey, looking at how wealth levels of people of the same age changed between 2006/08 and 2014/16. For an individual aged 40 to 50, total wealth was less than that compared to individuals of the same age 10 years earlier. This contrasted with individuals around retirement age – an individual aged 60 to 70 had significantly more in real terms.

The regulator says it wants to open debate on this topic in order to understand the specific challenges these age groups face.

For example, older people are living longer as life expectancy is increasing. So baby boomers will need to develop new financial strategies to maintain living standards in later life. Younger people face a series of difficulties in building wealth due to the combined impact of rising house prices, unsecure employment, and student debt.

The FCA agrees generation X are likely to be financially stretched, torn between the responsibility of helping older generations in later life and providing financial support to the younger generations. This leads to being unable to set aside money for their pension or to save for emergencies – leaving them open to financial shocks.

Financial needs across generations are changing so that the same products serve different purposes. For example, a few decades ago people were able to get their first mortgage in their mid-20s, and were able to pay it off before retirement. Millennials now take out a mortgage over five years later in life and may still be repaying it in retirement. On the other hand, baby boomers may turn to mortgage-type products to access money to maintain living standards or help relatives.

Christopher Woolard, executive director of strategy and competition at the FCA, said: ‘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.

'With this paper, the FCA has a specific focus on the role the regulatory framework plays in reducing barriers to intergenerational engagement with their finances.

'Now is the time to step back, consider and understand how these needs are evolving and challenge assumptions about consumer needs in the context of different intergenerational factors.'

The FCA is inviting comments by 1 August and is holding a conference on the topic in central London on 2 July.

FCA discussion paper 19/2: Intergenerational differences

Pat Sweet

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