Stuart Price, Partner and Actuary at Quantum Advisory, said: “If you were born before 1960, chances are you’re either retired or are thinking about it. It’s also highly likely you have been a member of an employer’s defined benefit (DB) pension scheme for a significant period of your working life and can look forward to a relatively comfortable retirement. Unfortunately, this comes at the expense of the younger generation.
“While DB schemes were once the norm, they are now on the decline due to the spiraling costs to employers to fund these arrangements as we continue to live longer. These types of pensions are being replaced by defined contribution arrangements for the younger generation. Unfortunately, many employers can’t contribute much to DC arrangements because they are struggling to pay off the huge deficits caused by their previous DB schemes.
“The intergenerational gap doesn’t stop there. As well as less generous private pensions, the younger generation will also have to work longer as the State Pension age gets increasingly higher.
“To diminish this gap between generations, the government could look to remove some of the guarantees on benefits built up in DB arrangements. This would help reduce or even eliminate deficits in DB arrangements and therefore more employer contributions could be directed into the DC schemes. Although this solution wouldn’t go down well with the ‘golden generation’, it would help to create a more level playing field between age groups.
“Another option would be for the government to introduce national insurance on the pensions paid out by DB arrangements. Currently this is not the case, but by applying it would likely raise billions which could be used to keep the State Pension Age at the current level.
Furthermore, the government could contribute to DC arrangements, which would help even out the generational playing field.
Notwithstanding the above, those in their twenties, thirties and forties must take action now and not assume the state pension and bare minimum contributions to their employers DC arrangement will be enough to retire comfortably. I always recommend saving half your age to your employer’s pension scheme. So, a thirty year old should in total be saving 15% of their income towards their retirement provision, more if they can. This may sound like a lot, but the younger generation need to understand what lies ahead and do something about it - with financial education being key from school age up to the point of retirement (and beyond)!”
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