Over half of Gen X heading for inadequate retirement income

New research from The Social Market Foundation has warned that many workers may face a ‘pension shock’ in the coming decade, as they realise their retirement income is likely to be significantly lower than expected.

Gen X (those born between 1965 and 1980) fall in the gap between the two pension systems. Many were too young to benefit fully from generous defined benefit schemes, but too old to build up significant savings through automatic enrolment, which was introduced in 2012.

When many in this cohort begin to retire within the next decade, millions will discover their pension savings fall well short of maintaining their current standard of living. The findings are based on a Survation survey of 2,000 Gen Xers across the UK. The research, sponsored by the Standard Life Centre for the Future of Retirement, found that 54% are projected to have inadequate pension incomes in retirement, with 39% will falling short of maintaining their current standard of living. A furtehr 35% could fall below minimum retirement living standards.

The research also suggests many workers are unaware of the scale of the problem. Around half of Gen X respondents expected a higher retirement income than current projections suggest. When informed about their likely retirement finances, 16% said they would cut spending on essentials such as food, energy or transport to increase savings.

The impact is also uneven across the country. Nearly half of Gen X in the North East (49%) are projected to fall below minimum retirement living standards, compared with 26% in the South East. Women, renters, those who have divorced, people with long-term health conditions and ethnic minority groups are also more likely to be affected.

The report warns that pension insecurity among this large cohort could also become a more prominent political issue as Gen X approaches retirement age. ‘Pension shock’ is likely to affect over 40% of the Gen X voting bloc for every major party. Reform has the highest proportion of voters vulnerable to pension shock (55%), followed closely by the Greens (53%). In focus groups, researchers noted that experiencing pension shock often reinforced people’s frustration with policymakers and institutions, potentially making them more sympathetic to parties not recently in government.

Gideon Salutin, Chief Economist at the Social Market Foundation, said “Gen X is approaching retirement, caught between two pension systems. Many were too late for generous defined benefit schemes and too early to benefit fully from auto-enrolment. This generation, now approaching retirement, forms a slow-moving avalanche. Millions are heading for a retirement without the income they expect. Without action, their retirements will be meagre. Despite many of them working longer than their parents and making more money than their parents, Gen X is in for a substantially worse retirement.

“Action is urgently needed. The Pensions Commission provides a perfect opportunity for change, but time is running out for Gen X. Unless policymakers make difficult decisions, the next wave of retirees looks likely to fall into inadequate retirements.”

Catherine Foot, Director of the Standard Life Centre for the Future of Retirement, said “Gen X are at the sharp end of a building retirement crisis. While today’s retirees are better off than previous generations, this trend is set to go into reversal within the next decade and into the 2040s. There is a relatively short window now in which to act, and two key enablers for Gen X will be pension dashboards that help people get a clear picture of the outcome they’re on track for and policies designed to support longer working lives, which leads to greater financial security. Younger generations have more time on their side, but ultimately the Pensions Commission must consider savings levels across society if we’re to avoid a repeat of the challenge now facing Gen X.”