A third of Gen Xers have just £10,000 or less saved for their retirement, with many facing difficult decisions
Inside the pensions crisis
Retirement feels more uncertain than ever, with nearly six in 10 adults unsure if they have enough time to save for a pension. Successive governments have struggled to address the issue. So, how did we get here, and what can be done to fix it? The i Paper brings you the essential stories on what went wrong with pensions, along with expert insights into the policies and solutions that could help secure your financial future.
Read more: Triple lock state pension is broken – here’s how to fix it | Teachers blocked from swapping big pensions for higher wages | I’m famous and I’ll never be able to afford to retire | How much you need to save each decade of your life to have a £1m pension pot | Why the state pension triple lock is closer to being axed than you think | ‘I’ll never be able to retire’: The 45 to 60-year-olds with no pensions
When Suze Mannion hit 55 she went from feeling concerned about her pension to something approaching panic. She wasn’t in a good financial position, and felt frustrated and embarrassed not to have taken the issue seriously sooner.
“I had no idea about the importance of pension saving when I was young,” says Suze, who works as a stylist among other jobs. “It just wasn’t discussed. Back then, you were made to feel intimidated by the whole thing. Only very rich people invested. It wasn’t something normal people did.”
Splitting up with her partner at 43 was also a factor. She had assumed they would be together for ever; that when they retired they would have two incomes to live off and his decently-sized pension would help. Only when they went their separate ways after 18 years together, his pension money wasn’t discussed.
“At that time I focused on getting a home, and of course you’re keen to resolve everything so you can move on. But then as I got a bit older and started thinking about what I was going to live on in retirement, my future became very worrying.”
Suze is now 60 and living in Berkshire. She would like to retire now but can’t afford to. She started seeing a financial adviser five years ago, and saving into her pension pot, but while things are improving she still describes her pension pot as small.
“I feel like the time has come to slow down and enjoy life and I do feel a bit hard done by.”
As she begins her sixth decade, she recently took on an additional job in a nursery on top of working as a self-employed stylist and bra fitter.
Without much choice her plan is to keep going until she reaches 67, when she will start receiving the state pension.
Working three jobs for another seven years is “daunting”, however. “I’m going up to Coventry every other weekend to be with my mum who has dementia. I’m tired and it’s a lot of worry. I know I’m not alone as when I go to garden centres and supermarkets, I see a lot of people my age working. They are like me: they can’t afford to retire”.
There is a common assumption, particularly among younger people, that older generations don’t have to worry about retiring broke. But while this may be true for some lucky Baby Boomers (now aged between 61 and 79), it’s less true for members of Generation X, who were born between 1965 and 1980.
Research by the think-tank the Institute of Fiscal Studies has found that 30 per cent of people in this age group – between 45 and 60 – have just £10,000 or less saved for their pension. This means that nearly one in three are likely to be almost totally reliant on the state pension when they retire. And despite the amount increasing thanks to the triple lock – currently a full state pension pays £221.20 per week – it is still relatively ungenerous compared with other European countries.
Gen X has been unlucky: they were too young for final-salary pensions, which Boomers were more likely to benefit from – these fantastically generous schemes began to be culled by companies in the 70s. By 2010 they were largely phased out for workers outside the public sector.
Meanwhile, autoenrolment, which obliged an employer not only to open a pension for most of its employees but to pay money into it, came into effect in 2012. The genius of autoenrolment is that your future doesn’t have to depend on your ability to engage with your finances at a young age.
Gen Xers were between 32 and 47 when it was introduced. While still helpful, it happened later than ideal.
Sir Steve Webb, the then pensions minister who introduced autoenrolment explains he did so because by the early 2000s, the rate of people saving into a pension had plummeted. When he started his role in 2010, two-thirds of people outside the public sector did not have any kind of pension at all.
“For a smooth transition into retirement without a shart drop in living standards”, Webb, now a spokesperson for LCP pensions advisory, adds, “you should target having a pension income of roughly two-thirds of your annual earnings before retirement.”
Clearly many Gen Xers have always been very far from the target, not helped by the 2008 financial crisis. The shock waves from this included a stalling of real wage growth for 15 years after. For almost half their working lives, this cohort saw their wages depressed by the crisis. Research carried out by the Resolution Foundation suggests that the average person would today earn £11,000 more a year had the crash not happened. This lost earnings gap is bad for pension saving too as the proportion of salaries contributed has been lower than had the crash not happened.
Asit is 56 and lives in Watford. He has worked in the public sector for 21 years and is married with two sons. He pays 5 per cent of his salary into his pension and his employer contributes a further 20 per cent. He is on track to retire at 70 with an income of around £1,400 a month, having paid off his mortgage.
While this is a decent amount, it is not enough according to the Pension & Lifetime Savings Association which calculates a couple needs a minimum of £22,400 a year for a basic retirement, £43,100 for a moderate one and £59,000 for a comfortable retirement. For a single person it’s £14,400, £31,300 and £43,100. All these calculations assume someone owns their home outright and won’t be paying rent.
While Asit is aware his pension scheme is more generous than most, he also feels it is less than it should be, as his salary has been depressed.
“I haven’t seen the same increases that people in the private sector have, which has impacted my pension. In recent times there have been barely any pay rises – most years 1 per cent, sometimes no increase at all.”
Chris Pitt, the 59-year-old CEO of First Direct bank describes not understanding the need for a pension earlier in life as his “biggest financial regret”.
“Having not come from money, I tended to be cautious and preferred to have money saved in cash in case my family needed it. With retirement now only a few years away, I find myself hoping that I’ve done enough but wishing I had done more.”
Rachel Jensen, who runs Jensen Wealth Management in Wiltshire, often sees Gen X clients who have started thinking about their pension later in life and are struggling to save because they find themselves in the sandwich generation. Paying for care for both ageing parents and children not only means less spare cash to save for later life, but it can also lead to reduced working hours impacting how much can be saved, says Jensen.
“Because workplace pensions weren’t as common when my clients started work, saving for retirement was often entirely a person’s own responsibility. And yet no one was given education or guidance on how to do it effectively, or even why they should do it.”
There is one respect Gen X has been lucky, however, and this is with the property market. Home owners have mostly seen rapid gains in Gen X’s lifetime, gains that later generations may never see, even if they are able to buy. For some, particularly those in the South of England where gains have been highest, their homes are their pension. They can downsize or release money when they retire. But for others, who didn’t buy or live in locations that haven’t seen steep increases, this has not rescued them in the same way.
There are things that can be done, however. The most obvious is to increase how much you save into your pension. But if you don’t have the extra money to do this Tom Selby, director of public policy for the investment platform AJ Bell, suggests asking your company to increase how much it pays into your pension.
“It’s sensible to check with your HR department what your employer’s maximum levels are, and what you need to do in order to reach that level” he says. “Many employers do contribute quite a bit more than the minimum of 3 per cent, while some companies will match contributions up to a point.”
He also points out that even if you are 50, if you take your pension income out by drawdown (which means you take the money you need, leaving the rest invested) you still have up to 30 years of investment growth to go. A financial adviser can help you assess how to do this sensibly.
Self employed people – of any generation – are generally in a worse position. One 47-year-year old woman who doesn’t want to be named only started saving at the age of 45. She was self employed for most of her career to spend more time with her two children.
“When I finally opened a private pension, I wondered why I hadn’t done it sooner. I went online, ticked a few online boxes about my risk appetite and started a standing order. It was easy, and I felt an immediate sense of relief,” she says.
Now she has moved to an employed job – and 16 per cent of her salary goes into her pension. She thinks there should be more information and support for self-employed people about pension saving.
“As no one sets up a pension for you, it means if you aren’t financially mature early on in your life – and let’s face it, who is sensible enough to prioritise pension saving in your twenties when you are trying to save for a home?”
Some Gen X-ers are investing to try and make enough to retire on, instead. David McCarthy was studying banking in his home country of Ireland with plans to work in the industry just as the 2008 financial crash happened. This caused his career to stall, and then he moved to the UK, which he said led to him “starting again” financially.
He lives in London, is self-employed and transports high-value items, including works of art, around the world. He has a private pension but says he is “well behind” on his pension plans: now 50, he started addressing it five years ago.
He is trying to make up for lost time by investing in AI and countries with less developed economies, but potentially more growth ahead. Last year his investments returned 25 per cent.
“I like to think of it as calculated risk,” he says.
Another option is to delay retirement or to continue to work part time. If you are in a position to delay receiving the state pension, deferring it by a year will increase how much you will receive when you do claim it. At the current rate of state pension (£221.20 a week for a full one) this will get you an extra £13 a week.
Asit, the public sector worker, is planning to continue working part-time after he reaches the official retirement age, fitting it around travelling to exotic locations: South America and Bali are next on his list.
The goal, he says, “is to generally have a more relaxing life – and hopefully having grandkids to spend time with – with enough money not to worry.”
Inside the pensions crisis
The i Paper brings you the essential stories on what went wrong with pensions, along with expert insights into the policies and solutions that could help secure your financial future.
Teachers blocked from swapping big pensions for higher wages. A trust of nearly 100 schools planned to offer teachers the chance to take home higher pay in return for smaller pension contributions from April, but has been stalled after a Government intervention. Click to read.
Why the state pension triple lock is closer to being axed than you think. Labour MPs are starting to go where few politicians fear to tread – discussing reform of the state pension triple lock. Click to read.
Triple lock state pension is broken – here’s how to fix it. Sir Steve Webb, the former pensions minister, says every political party wants to get rid of the triple lock. Click to read.
I’m famous and I’ll never be able to afford to retire. I now put 20 to 25 per cent of my earnings into the pension, writes Lucy Porter. Click to read.
How much you need to save each decade of your life to have a £1m pension pot. If you want to ensure a comfortable retirement, start thinking about saving more now – here’s how to do it. Click to read
‘I’ll never be able to retire’: The 45 to 60-year-olds with no pensions. A third of Gen Xers have just £10,000 or less saved for their retirement, with many facing difficult decisions. Click to read.
