Generation X faces ‘grave’ financial reality in 30 years

If anything good has come out of this year’s crisis it has been the spotlight shone on some of society’s greatest challenges.  

In money terms, the pandemic has brought generational inequalities to the fore, shaking off tenuous assumptions about the frivolity of the young and the greed of the old to spread a patchwork of political legacy and economic timing before us that millions of people are falling through.  

Much has been written about the job losses and bleak prospects among the UK’s youngest adults in particular. Millions more fear a peak in unemployment in 2021.  

But for others, a different kind of “Long Covid” threatens to leave them destitute in old age, according to a worrying new report that suggests hardest hit will be the generation that already falls between the funding pillars of generous defined benefit pension plans for those older than them and a lifetime of the workplace pension set to support younger adults.  

At least one in three, roughly 4.3 million Generation Xers born between and 1965 and 1980, will end their working lives with “minimal” incomes, the International Longevity Centre UK (ILC) has warned.  

More than two million will have to survive on the state pension of a little over £9000 a year, around £25 a day. More than six million members of this generation believe they will be worse off than their parents when they have to stop working.

Increasingly known as the “forgotten generation”, the think tank – which specialises in the social impact of ageing populations – warns that those retiring over the next ten to thirty years were already facing significant barriers to saving before Covid hit, with millions prioritising paying off debts.  

These debts include mortgages. Rising house prices at the turn of the millennium added to affordability challenges that meant the first time buyer age peaked within this generation at 31 before falling to 27 among today’s first steppers. This generation will still be paying off housing costs long after their parent’s generation hit the black.  

This data assumes they own property. Data from the Office for National Statistics (ONS) earlier this year shows a third of adults in their late 30s and 40s now rent their home – a cost that will continue for the rest of their lives. Almost 16 per cent of 45- to 54-year-olds also rent from private landlords, up from only 5.6 per cent in 1997.  

“One in five of the UK population are Gen Xers and millions will face problems because of inadequate retirement savings if actions aren’t taken to help them understand their current position and the options available to them,” warns Jenny Holt, managing director Customer Savings & Investments, Phoenix Group.

“This is the generation that entered the job market too late to benefit from final salary pensions, yet too early to benefit from schemes such as auto-enrolment. The combination means that without appropriate intervention many Gen Xers are expected to face very significant challenges in retirement, and even pensioner poverty.”

So things were already tricky before a global pandemic disrupted their – and everyone else’s – lives, incomes and financial security.

Over the course of this year, almost 1.6 million Generation Xers have been furloughed, 1.3 million are on reduced working hours and just over half a million have been made redundant. With one in 10 now reliant on any savings to get by, the ILC estimates 2.6 million people in this age group have had whatever retirement planning they did have fundamentally disrupted.  

“From a retirement income perspective, many Gen Xers are, frankly, screwed. Too many are sleepwalking into a retirement where they won’t have an adequate income to meet their aspirations and their situation has been made worse by Covid-19,” ILC director David Sinclair said, adding that the research had revealed “a sense of hopelessness about how they might turn things around”.

“There is some good news however,” he added.  “Some people really do want to save more. They just don’t see how they can do it. Government and industry must find a way to lever this willingness and ensure public policy better addresses the barriers too many are facing to saving.”

The ILC is calling on government, industry and employers to urgently work together to support this generation and avert millions from struggling in retirement in the decades to come.

“The Turner Report helped to establish a national consensus around the need to encourage greater retirement saving,” added former secretary of state for work and pensions, Lord Hutton.

“We will need a very significant focus on Generation X as we consolidate the enormous progress we have made since 2005 in establishing an effective and inclusive pension savings policy.”

“Policymakers, industry and business need to work together to help this generation, including ensuring they have access to the right support – whether that’s guidance or advice – when they need it,” said Holt.  

“With the Covid-19 impact putting additional strain on finances this need is even more urgent.”

The Money and Pensions Service advises anyone – of any age – who hasn’t already done so to start planning their retirement finances by tracking down pension pots and checking their value. Lost funds can be recovered through the government’s Pensions Tracing Service.  

Then draw up a budget of expected income and spending in older age. The Money Advice Service has a free budget planner tool, for example – before deciding on a retirement age and when the money should be accessed, including whether other family members should benefit.

The over-50s can also make a free appointment with the impartial government-backed service Pension Wise, which offers one to one phone appointments with specialist advisers, including how to avoid pensions scams.