Many Generation Xers in UK face financial hardship in retirement

A significant proportion of Generation Xers in Britain face financial hardship in retirement, with one in three likely to experience substantial disadvantages, according to a report.

Many 40- to 55-year-olds are unable to save because they are overwhelmed by multiple financial pressures, struggling with volatile incomes and juggling competing priorities including caring, debts and mortgages.

The International Longevity Centre UK (ILCUK) report says:

• Generation Xers are chronically under-saving, with nearly one in three at risk of reaching retirement with inadequate incomes.

• The majority (57%) want to save more for retirement but cannot afford to because of multiple financial pressures.

• Many Generation Xers are unaware they are saving too little to achieve the level of income they desire: just 7% of those with a defined contribution (DC) pension are saving enough to achieve a moderate lifestyle in retirement.

• Covid-19 has further disrupted people’s retirement plans, with one in five Generation Xers saving less or spending down their savings as a result.

“It is clear that Gen Xers will need to contribute the lion’s share of their pension contributions to achieve a modest or moderate retirement income,” said Sophia Dimitriadis, the report’s author.

“Generation X is a very diverse cohort. Some subgroups in the age band are well prepared for retirement: almost 60% expect to have additional income in retirement, such as property wealth, other investments or savings, an inheritance or income from their partner or family.

“But other subgroups are at high risk of financial difficulty in later life, including those on benefits, the self-employed, low earners, renters and carers,. Many want to save more but are struggling to do so. Others, however, do not know how much they have saved, or are unaware that they have not saved enough for a modest quality of life in retirement.”

The pandemic has hit Gen Xers hard: they are the age group most affected by the pandemic, with 91,000 more unemployed older people now than there were 12 months ago. That is an increase of more than 30% in a year, and significantly more than in any other age group.

The ILCUK report says almost 40% of Gen Xers do not feel confident about planning for retirement and few understand the levels of savings needed to achieve a good income in retirement.

Of those contributing to DC pensions, more than half are handing over just 8% of their earnings or less, and almost half have significant gaps of at least 10 years in their pension contributions.

More than a quarter of Generation Xers who are still working expect to either mostly or completely rely on the state pension in retirement or do not have any pension savings at all.

“Many will rely on working for longer to compensate for lower savings,” Dimitriadis said. “But poor health, caring responsibilities and age discrimination continue to be a barrier for many older workers, and 32% of Gen Xers say that they are not confident they will be able to work for as long as they need.”

The ILCUK is calling for specific measures to be introduced by the government to help. “These challenges require structural solutions beyond the scope of the pensions system,” Dimitriadis said. “Addressing barriers to working longer will be a particular priority to help the Gen Xers who will need to do so.”

Emily Andrews, a senior evidence manager at the Centre for Ageing Better NGO, said: “The findings of this report are really worrying and highlight the precarious financial future facing many of those in their 40s and 50s. Increased housing costs, insecure work, and caring responsibilities risk leaving many without the savings they need for later life.”