'Urgent support' needed for Gen Xers as 30% expect to retire without adequate savings

Nearly a third (30 per cent) of ‘Gen Xers’, those born between 1965 and 1980, risk reaching retirement with inadequate income, industry research has found, prompting calls for "urgent support" to help this group, including reforms to auto-enrolment.

The report, from the International Longevity Centre UK (ILC) and Phoenix Group, suggested that Gen Xers retirement plans had been hit "hard" amid the pandemic, with 20 per cent of this subset saving less or spending their savings as a result of Covid-19.

Furthermore, whilst nearly half (46 per cent) of Gen Xers had defined contribution (DC) pensions, the majority are not contributing enough to these pots, with 7 per cent saving enough to achieve a moderate lifestyle, whilst 44 per cent reported gaps of at least 10 years in their pension contributions.

Despite this, the majority (57 per cent) of respondents stated that they want to save more for retirement, but that they cannot due to multiple financial pressures, volatile incomes, and competing priorities.

Low motivation to save and a lack of information around retirement savings were also highlighted as key barriers to saving, with more than one third (39 per cent) Gen Xers admitting that they do not feel confident about planning for retirement.

In contrast, key barriers to saving for those identified as the most disadvantaged groups included the challenges of combining work with care, high rental costs or high deposit costs, lack of secure employment, and being limited in the ability to work due to poor health.

Self-employed savers, renters, carers, and those with relatively low income and education levels were among those highlighted as the most disadvantaged savers.

The report argued that whilst many will expect to rely on working for longer to compensate for the lower savings levels, poor health, age discrimination and caring responsibilities continue to be a barrier to this.

Indeed, nearly a third (32 per cent) of Gen Xers stated that they are not confident that they will be able to work for as long as needed.

In light of the findings, the report has called for an increase in current automatic enrolment contribution rates, for both employees and employers, and auto-escalation of employee pension contributions, where they would be raised in line with salary increases.

In addition to this, it has called for mortgage providers and the student loan company to introduce nudges that automatically transfer mortgage or student debt payments towards a pension once they have been paid off.

The report has also called for a number of changes to support extended working lives, including requiring employers to make all arrangements flexible by default, and extending the lifetime skills guarantee for all ages.

Commenting on the findings, ILC research fellow, Sophie Dimitriadis, said: “Generation X are heading for trouble. Too many Gen Xers simply can’t afford to save as much as they need to or are juggling too many other priorities to know where to start.

“And Covid has just made things worse, with lots of people having to dip into their pension pots to make do in the short term.”

“A big group of Gen Xers are banking on working for longer to make up for their shortfalls in savings. But working longer simply won’t work for all. And we know that especially following the pandemic, lots of people could face long-term unemployment or even early retirement forced upon them when they can least afford it.

“It’s not too late for government to intervene to support those most at risk of poor retirement outcomes by changing default contributions, by making the right choices easy and by putting people in control of their finances.

“Retirement planning is a marathon not a sprint – but many Gen Xers are hitting the second half of the marathon without a plan as to how to reach the finish line.”

Phoenix Group CEO of savings and retirement, Andy Curran, agreed that "urgent action" is needed to help improve the future of Gen Xers, emphasising that this generation will have been too late to take full advantage of defined benefit pensions, yet to early to enjoy the full benefits of auto-enrolment.

“This tragic combination means that many Gen Xers will face important challenges in retirement, which will lead some of them over the edge of pensioner poverty," he warned.

“The impact of Covid-19 has only exacerbated this risk, placing additional strain on many people’s finances.

“Now, more than ever, we need to support and engage with those who feel ill-prepared for later life as we look to build back better."

He continued: “It’s clear that none of us can solve this challenge on our own, it will require government, industry, and policymakers working together to ensure the best possible outcome for this generation.

"But this report also shows that it’s not too late to act to ensure Gen Xers get the support they need to live the life they want.”

Shadow Secretary for Work and Pensions, Jonathan Reynolds, added: "Coming out of the crisis, connecting people with their pensions and making sure they have good retirement outcomes has got to be a priority.

"We need to think about how today's pensions infrastructure can work for everyone, building on the success of auto enrolment and speeding up the pensions dashboards."

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