The average Gen X man pays £253 each month into their pension; while the average woman aged 39-54 puts aside slightly over half as much for retirement– just £139 per month. The October 2019-published study by the Institute and Faculty of Actuaries (IFoA), building on the Pensions and Lifetime Savings Association’s (PLSA) Retirement Living Standards research, calculated that those on average incomes need to set aside £799 per month to afford a ‘moderate retirement lifestyle’. The new Dunstan Thomas study carried out in November, found that only five per cent of all Gen Xers are saving more than £750 per month for retirement.
The study uncovered that Gen Xers are generally only putting minimum contributions into their pensions: 29 per cent have never paid more than the original minimum ‘default’ contribution amount and 28 per cent of 51-54 year olds (the oldest tranche of Gen Xers) are still paying in less than five per cent of income into their pension.
The study also found that there are four major factors influencing Gen Xers’ pension savings levels:
1. Redundancy nearly halves pension savings
The first factor has been the impact of increased redundancy events which have been more prevalent in this age group than before. Over four in ten (42 per cent) Gen Xers have been made compulsorily redundant at least once and 21 per cent have accepted voluntary redundancy. The average pension value for those hit by one or more compulsory redundancy events is £120,634, as opposed to 39-54 year olds that have not been exposed to this job shock who hold nearly twice as much in their pension pots at £202,017.
Those exposed to voluntary redundancy fared little better. The average pension pot size for those taking voluntary redundancy is £138,834, compared to those that had not been exposed to voluntary redundancy whom had nearly £39,500 more in their pot at £178,329
2. Sandwich Generation squeezes Gen Xers’ wallets
The second factor highlighted by the Dunstan Thomas study is the well-known ‘Sandwich Generation’ effect. Nearly a third (32 per cent) of the 2011 39-54 year olds captured in this nationwide study have a child over the age of 18. Of this group, the average amount given to adult children by their parents is £142 per month, rising to £299.80 amongst Londoners.
For Gen Xers which are parents, the level of financial support given to their adult children rises with total household income, so that those with a total monthly household ‘take home’ income in excess of £5,000 hand over an average of £365.30 each month to their adult children.
Four in 10 (42 per cent) Gen Xers with adult children pay for their mobile phone. A third (34 per cent) provide a living allowance whilst they are in further education. Nearly as many (31 per cent) provide money for special or formal clothing. Gen Xers pay for holidays for 29 per cent of adult children and cover car-related costs for 27 per cent; 18 per cent provide contributions to their rent and 22 per cent are supplementing their income, even though they are already in work.
On the other side of the sandwich, nearly one in 10 Gen Xers (nine per cent) have elderly parents living with them, which they support financially and a further 6 per cent support parents financially although they have not moved in with them. Nearly one in six (15 per cent) Gen Xers perform caring duties for their elderly parents - giving an average of 3.9 hours of their time for these duties during the working week. Seven per cent spend more than 16 hours per working week. Older Gen Xers (aged 51-54) provide an average of 5.6 hours of care for parents in normal working hours each week.
3. Great Recession pension savings freeze
The third significant factor uncovered by the Dunstan Thomas study is that Gen Xers were the age group most exposed to financial disruption during the Great Recession from 2008-2013 because of their age at the time (they were 28 to 43 when it started). The study found that nine per cent of Gen Xers saw ‘a major impact with retirement savings going on hold for all or nearly all’ of the infamous five-year downturn.
One in seven (14 per cent) self-employed Gen Xers froze all retirement savings during most or all of that period. 15 per cent of Gen Xers with a monthly household income of £4,501-£5,000 today, recorded halting pension contributions for most or all of this period, confirming what many reported at the time; that the Great Recession was the first downturn that hit middle and high-income family incomes exponentially.
4. DB versus DC pensions value fault line
A fourth key reason for pension savings values falling amongst Generation X is that this age group has been most exposed to the decline of the more generous Defined Benefit (DB) pensions. Only about a quarter (26 per cent) of 39-54 year olds now hold a DB pension.
The study also found that of the quarter who held DB pensions, the average total pensions value was more than twice that of those who only held Defined Contribution (DC) schemes. The study found that those with DB pensions had an average total pensions value of £251,978, whilst those with no exposure to DB had an average value of just £123,577.
The combined result of the reducing generosity of employer pension schemes, the fact that Auto Enrolment (AE) pensions did not start until too late for most Gen Xers (it did not reach all types of businesses until 1st February 2018) together with changing working practices and demographics, means that Gen Xers’ retirement savings are nowhere near where they need to be to provide enough retirement income to fund comfortable retirements at or close to State Pension age (rising to age 66 from October 2020).
Over half (55 per cent) of all Gen Xers don’t think they are saving enough to maintain their lifestyle in retirement and over a third (34 per cent) think that situation won’t have improved by the time they actually retire. This pessimism drops a little for the oldest Gen Xers (aged 51 to 54), 41 per cent of whom don’t think they will have enough to retire without reducing their living expenses.
DB to DC transfers demand relentless
Nearly two thirds (63 per cent) of those still in DB policies are considering whole or partial DB to DC pensions transfers in order to access some of these savings from the age of 55 (as new Pension Freedoms allow).
Most common solution to under saving: work beyond traditional retirement age
When asked what Gen Xers plan to do to alleviate the problem of retirement income shortfalls, the largest group (36.27 per cent) said they were prepared to work beyond planned retirement age. A slightly smaller percentage (31.26 per cent) were prepared to be poorer in retirement; whilst 26.17 per cent were determined to save more than they are today between now and retiring. The remainder (6.3 per cent) plan to emigrate to cut their cost of living.
Some Gen Xers are relying on an inheritance to retire. Of the 42 per cent anticipating receiving an inheritance before they retire, nearly one in ten (nine per cent) will not be able to retire at all until they receive that inheritance. A further third (34 per cent) think that their inheritance is ‘a fairly important factor’ in supporting their retirement income and only 12 per cent felt it was insignificant.
A sizable minority - 40 per cent - agreed with the statement “I’m not sure I will ever be able to fully retire.” A further 38 per cent prefer not to think about retirement “because it worries me so much”, and a further 24 per cent appear to be pushing the decision-making further down the road by agreeing with the statement “retirement is too far off for me to start thinking about it now.”
Semi-retirement trend set to increase
Over half (53 per cent) of Gen Xers think they will ‘probably’ take a part-time paid job in semi-retirement and more than a quarter (27 per cent) have decided they will ‘definitely’ do so if they can secure paid part-time work. Larger numbers of people are prepared to work part-time to make ends meet in lower income groups – a third (33 per cent) of those with a total household take home pay of up to £2,000 per month are ‘definitely planning to take part-time employment’ when their core job finishes.
Overall, on average Gen Xers expect to retire at 66.5 years old. Just 10 per cent expect to retire by the age of 60. Lower income households bringing in £1,251-£1,500 per month anticipate retiring by the age of 69.2 years old.
Adrian Boulding, Director of Retirement Strategy at Dunstan Thomas commented on these findings: “It’s clear from this study, one of the most comprehensive pieces of research of UK resident Gen Xers’ retirement plans ever carried out, that a number of factors have come together to impact Gen Xers’ long-term savings levels. The closure of large swathes of the DB market, AE coming in too late, the timing of the Great Recession, together with changing working practices and demographics, are all major factors influencing saving levels so that only about five per cent of Gen Xers are on track to be able to fund even moderate retirement lifestyles and 25 per cent claimed to have no savings or investments at all.”
“Yet despite this negative backdrop, it was cheering to see that well over half (58 per cent) of Gen Xers were happy with their ‘current income and living arrangements’. This economic happiness index rises to 60 per cent for the oldest sub-group captured in the study aged 51 to 54.”
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