The new report “Slipping between the cracks”, published today by the International Longevity Centre-UK (ILC) with the support of Phoenix Group, calls for urgent support to help this group set to retire over the next 10-27 years.
With many Gen Xers having joined the job market too late to really benefit from more generous final salary pension schemes, yet too early to benefit fully from auto-enrolment into a workplace pension, in addition to suffering disruption to their saving plans due to the global pandemic, many are headed for trouble if policymakers fail to respond promptly, ILC argue.
The report, based on a nationally representative survey, finds that:
• Nearly 1 in 3 Gen Xers risk reaching retirement with inadequate incomes.
• 1 in 5 Gen Xers are saving less or spending down their savings as a result of COVID-19.
• Nearly half (46%) of Gen Xers have defined contribution (DC) pensions – but the majority aren’t contributing enough to these.
• The majority of Gen Xers (57%) want to save more for retirement but can’t as they straddle multiple financial pressures, volatile incomes and competing priorities.
• More than 1 in 3 Gen Xers don’t feel confident about planning for retirement.
• The self-employed, renters and carers are among the most disadvantaged.
While many Gen Xers plan to rely on working for longer to make up for these shortcomings in savings, the report warns that many might not be able to do so. Poor health, caring responsibilities and age discrimination continue to be a significant barrier for many older workers and the pandemic has only acted to exacerbate these inequalities. One third of Gen Xers say they’re not confident they’ll be able to work for as long as they need.
On top of this, the report finds that lots of Gen Xers may be sleepwalking towards financial hardship in retirement – 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 may not materialise. One in five Gen Xers who expect their lifestyles to continue or improve upon retirement aren’t even saving enough for a decent income.
To support Gen Xers to save more, ILC and Phoenix argue for:
• Increasing current automatic enrolment contribution rates (for employees and employers)
• Auto-escalation of employee pension contributions (raising pension contributions in line with salary increases)
• 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.
To support extended working lives, ILC recommend:
• Requiring employers to make all job arrangements flexible by default so that employees can alter their working patterns throughout their lives.
• Providing new guidance to ensure that those with acquired disabilities are able to use Government Access to Work funds and that employers are aware of the requirements to make reasonable adjustments for them.
• Extending the Lifetime Skills Guarantee for all ages
• Providing targeted back-to-work support for people aged 40 and over being left behind by the pandemic.
Sophia Dimitriadis, Research Fellow at the ILC argued: “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.”
Andy Curran, CEO of Savings and Retirement at Phoenix Group, said: “The report shows that we need to take urgent action to help improve the future of Gen Xers who are slipping between the cracks. This is the generation that entered the job market too late to take full advantage of final salary pensions, yet too early to enjoy the full benefits of successful initiatives like auto-enrolment into pension schemes. 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.
“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. For many the preferred option is to stay in work for longer so they can save more to enable the retirement they desire. That’s why we are calling for all jobs to be flexible by default so that people can choose a working pattern that will enable them to work for longer as well as giving employers the benefit of an experienced workforce, and the mutual benefits that brings.
“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.”
Jonathan Reynolds MP, Shadow Secretary of State for Work and Pensions argued: "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 dashboard."
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