Why many Gen Xers are not prepared for retirement
Donna Walsh | June 23, 2021
Many people born between 1965 and 1980 – Generation X (Gen Xers) – are ill-prepared for later life. Nearly one in three (30%) Gen Xers risk reaching retirement with inadequate incomes: 46% have defined contribution (DC) pensions, but most aren’t contributing enough to these.
Some might be unaware that they’re saving too little to achieve the level of income they desire, or relying on forms of income (such as inheritance or downsizing) that might not materialise.
These findings were part of the report, Slipping between the cracks? Retirement income prospects for Generation X – produced by the International Longevity Centre, with the support of Phoenix Group.[i]
One in five (20%) Gen Xers who expect their lifestyles to continue or improve upon retirement aren’t even saving nearly enough for a minimum income.[ii]
Worryingly, more than half (59%) of this group expect to have no additional (non-pension) income – except the state pension – to support them in retirement.
Barriers to saving
There are 13.8 million Gen Xers in the UK. On average, they will typically reach retirement with lower levels of defined benefit (DB) entitlement than the Baby Boomer generation (1946–1964). And they will only partly benefit from the introduction of auto enrolment (AE), as it occurred mid-way through most of their working lives.
Although many Gen Xers are financially comfortable, many struggle to save. Some Gen Xers have faced stagnating wages, uncertain career paths, insecure incomes, poor health and a growing need to provide care.
Gen Xers are at a lower risk of retiring with inadequate incomes than millennials (1981–1996). But Gen Xers are at higher risk of pension inadequacy than the proportion of Baby Boomers – while they will have less time than millennials to remedy the situation.
Most Gen Xers (57%) want to save more for retirement, but struggle to do so in the face of other financial priorities. Key barriers to saving for the most disadvantaged groups among Gen Xers include:
- High rental costs, and the high costs of deposits required for home ownership
- The challenges of combining work with care
- Being limited in the ability to work due to poor health
- Lack of secure employment
- Poor access to training
Low motivation to save and a lack of information about retirement savings are among other barriers. More than a third (39%) of Gen Xers don’t feel confident about planning for retirement. And few understand the rules of thumb around the levels of saving needed to achieve a good income in retirement.
Many will rely on working for longer to compensate for lower savings, but poor health, caring responsibilities and age discrimination are still barriers for many older workers. Almost a third (32%) of Gen Xers are not confident they’ll be able to work for as long as they need.
Practical steps to help
Many of the savings challenges facing Gen Xers require structural solutions beyond the scope of the pensions system. However, working alongside their providers, employers may wish to consider introducing certain measures to help Gen Xer employees to save more for retirement, including:
- Developing a mechanism for the auto-escalation of employee payments to be applied at the point of pay increases (with opt-out) with immediate effect
- Introducing “nudges” that encourage those who pay off debts – including a student loan or mortgage – to start saving into a pension plan
- Offering employees MOTs at different critical stages in employees’ lives, and working with pension providers to offer education interventions
These steps could be accompanied by measures introduced to help more Gen Xers to work for longer, including:
- Making all job arrangements “flexible by default” so that employees can alter their working patterns throughout their lives
- Introducing a right to paid carers’ leave – of 10 days of paid leave, with a longer period of unpaid leave of up to six months
Most Gen Xers say they want to save more, but struggle to do so – hindered by various barriers, many of which have been worsened by the pandemic. Employers can make a vital difference.
This is the first in a series of articles examining the pension savings challenges faced by Gen Xers in the UK. It is based on an independent ILC report, produced with the support of Phoenix Group, an ILC partner.
Click here to read the full report.
The information here is based on our understanding in June 2021 and shouldn’t be taken as financial advice.
[i] The report draws on analysis of a nationally representative YouGov survey of 6,035 Gen Xers, which was carried out over the period 13–24 November 2020. This analysis was supplemented with panel discussions and a qualitative survey with a smaller number of Gen Xers, which explored their attitudes and perspectives. Previously published data and literature was also drawn upon.
[ii] Minimum standard of living: This is enough to cover basic living costs but not enough for individuals to have financial security and the flexibility to do many of the things they might want to do. The contribution level estimated to achieve this is 8% of average full-time earnings (member plus employer payments).
We use terms to describe different levels of retirement income that were coined by the Institute and Faculty of Actuaries (IFoA), building on research by the Pensions and Lifetime Savings Association (PLSA).