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Virtual report launch: Slipping between the cracks? Retirement income prospects for Generation X

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Virtual report launch: Slipping between the cracks? Retirement income prospects for Generation X

  1. 1. Slipping between the cracks? Retirement income prospects for Generation X Join the conversation: @ilcuk #GenerationX
  2. 2. Welcome from the chair Join the conversation: @ilcuk #Generation X Jackie Wells, ILC Associate
  3. 3. Welcome and reflections from Phoenix Group Join the conversation: @ilcuk #Generation X Andy Curran, UK CEO for Savings and Retirement, Phoenix Group
  4. 4. Presentation of the report Sophia Dimitriadis, Research Fellow, ILC Join the conversation: @ilcuk #Generation X
  5. 5. What this presentation will cover 1. Context 2. How prepared Gen Xers are and feel 3. The barriers they face to saving for retirement - including the most disadvantaged groups 4. The impact of COVID-19 5. Gen Xers’ plans around working in later life 6. Opportunities to support Gen Xers to build up their retirement incomes
  6. 6. Gen Xers’ retirement incomes have been affected by a number of socio-economic changes The retirement prospects of Gen X (13.8m people, aged 40 to 55), have been affected by: • A shifting pensions policy landscape - decline in defined benefit (DB) schemes & introduction of automatic-enrolment (AE) • Changing economic trends e.g., 2008 recession, rise in insecure work, house prices and rising employment. 0 200 400 600 800 1000 1200 1400 1980 1985 1990 1995 2000 2005 2010 2015 2020 Index (1980=100) Year The development of house prices and earnings in the UK from 1980 onwards* UK HPI UK earnings index GEN X start GEN X end *Gen X start and end years are based on the average age of a UK house purchaser born in 1965 and 1980
  7. 7. Younger Gen Xers will spend more years in poor health • Changing social trends: older parents & having children later • Changing health trends: living longer and spending more years in poor health Some shifts offer opportunities, but many hindered/could hinder retirement prospects + limited time. ILC has been exploring the key challenges to saving for retirement and solutions to address these (via panel discussions + Nat Rep survey).
  8. 8. How prepared is Gen X? While some may be prepared for retirement,1 in 3 may be very disadvantaged • Gen X is heterogenous: 44% have DB pension savings & 56% expect additional non-pension income in retirement. • …But the majority of the 46% of Gen Xers with defined contribution pensions are under-contributing. • Just under 1 in 3 are barely saving enough to achieve a minimum standard of living & 56% of this group expect no additional (non- private/state pension) income in retirement. “We haven't benefited from final salary pensions but were too late for auto-enrolment. Many of us have huge mortgages, are supporting children and haven’t had stable careers. We face very grim, late retirements.”
  9. 9. Slightly more Gen Xers are pessimistic vs optimistic, but some may be sleepwalking into financial hardship • 40% think they’ll be worse off (vs 40% same/better off) Are others sleepwalking into hardship? • 1 in 5 of Gen Xers who expect to not be worse off are considerably under- saving. • 1 in 4 are partly relying on risky incomes sources 7% 12% 20% 21% 27% 10% 2% Will you be better off or worse off than your parents were in retirement?* Much better off Slightly better off About the same Slightly worse off Much worse off Don't know “I know so many people that…are dependent on property, but that is risky.”
  10. 10. The majority say they want to save more but are struggling to do so, mainly due to affordability & debt “Competing priorities for mortgages/rent, time off work caring for relatives or supporting children through university… a pension seems like something to worry about in the future.” • 1/3 are prioritising paying off debts • 50% of Gen X say they can’t afford to save more 2% 8% 16% 21% 29% 62% 0% 10% 20% 30% 40% 50% 60% 70% Paying for adult care Saving for something other than a house deposit Financially supporting adult/young children Ability to work restricted due to health… Housing costs/saving for a deposit on a property Not earning enough Why Gen Xers feel they can't afford to save more Base equals ‘all Gen Xers who say they can’t afford to save more for retirement’ (50% of all respondents). Percentages may not add up to 100 as respondents could pick multiple responses
  11. 11. Many Gen Xers are overwhelmed with other priorities “I mean, for me, it's just time to think about it and plan for it… I'm trying to have my mortgage… do the best for my kids, my parents are starting to need care… I feel like a duck that's paddling as fast as I can, under the water, and retirement is just so low on the list… the barrier is just making it a priority.” 10% 16% 19% vs 44% of the self- employed 29% vs 38% of those living with children 32% 50% 0% 10% 20% 30% 40% 50% 60% I don't have enough information I find it difficult to motivate myself My income & outgoings are insecure I have too many other priorities I prioritise paying off debt I can't afford to save more The main factors that make it difficult for Gen Xers to save for retirement
  12. 12. Least prepared groups disproportionately struggle to save – mainly due to affordability & insecurity Least-prepared sub- groups for retirement Group size (millions) Key barriers Renters (private) 1.9 High rental costs. Many younger renters are saving for a home. Renters (social) 1.5 Poor health limits their ability to work. Those with low education/ unemployed/ on benefits 3.0/1.1/1.2 Poor health limits their ability to work, & lack of secure, well-paid work opportunities. Insecure in and outgoings Those on low incomes 3.0 Same as above - Insecure earnings especially key – many are self-employed. Many are also not eligible for AE. Those whose (poor) health limits their ability to work 2.1 Being limited in their ability to work due to poor health. Insecure earnings - many are self-employed (often pushed into this). Carers 1.7 (Adult) care responsibilities limit their ability to work and save, as well as poor health, which may be a result of providing care. Self-employed 1.9 Insecure and unpredictable earnings. Aren’t auto-enrolled.
  13. 13. COVID-19 is only making things harder – but is increasing engagement in retirement planning Since COVID-19: • 24% of Gen X have been furloughed, had their hours reduced or been made redundant & 2.6 million (20%) are either spending their retirement savings or are saving less. • Disadvantaged groups have been hit hardest. • But 23% of Gen Xers have more time to think/are thinking about retirement. “I lost my job at the start of the crisis and haven't been able to find work yet, so I am spending my savings.” 39% 17% 30% 17% 25% 16% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% % of Gen Xers who are eating into their retirement savings due to the pandemic “I now feel very vulnerable and once I start earning again, I want to save as much as possible to build up my pension pot.”
  14. 14. To compensate for lower savings, many Gen Xers (37%) are relying on working past the SPA BUT 31% aren’t confident they’ll be able to work for as long as they need. 13% 25% 29% 37% 0% 10% 20% 30% 40% Save more only Work for longer only (past the SPA) Save more Work for longer (past the SPA) What Gen Xers plan to do to address an expected income shortfall in retirement 14% 17% 19% 31% 31% 59% 0% 10% 20% 30% 40% 50% 60% 70% Adult caring responsibliites Impact of COVID on the economy Inadequate skills Age discrimination Poor mental health Poor physical health What reduces your confidence for working as long as you need to?
  15. 15. What can be done? Need a multi-faceted approach The government needs to: 1. Address the wider affordability constraints that so many face (structural solutions beyond pensions system). 2. Improve the pensions system by building on the success of AE to overcome the well-known ‘inertia to saving’ (overwhelmed generation). 3. Increase Gen Xers’ engagement and awareness of retirement planning by making information more accessible. With some Gen Xers retiring in just over a decade – the need to act is urgent.
  16. 16. Tackling the wider affordability constraints 1. Tackle the barriers to working for longer • Increase flexible work opportunities: make all jobs flexible by default • Support workers in poor health: increase awareness & access of government Access to Work funds for those with acquired disabilities • Review the mechanisms for enforcement of discrimination law allow tribunals to consider cases of multiple types of discrimination • Boost skills & support unemployed workers: extend the life-time skills guarantee to all adults & provide targeted back to work support for workers aged 40+
  17. 17. Tackling the wider affordability constraints 2. Make it easier for carers to combine their caring responsibilities with work Introduce a right to 10 days of paid carers’ leave & up to 6 months unpaid leave. 3. Make renting more affordable and secure, and support first-time buyers Develop & offer an opt-in tax-incentivised savings vehicle to all employees through AE, to allow first-time buyers to save for a housing deposit via regular contributions from pre-tax earnings, while also contributing to a pension.
  18. 18. Improving the pension system: building on the success of AE More effective if targeted at life stages when Gen Xers have fewer financial pressures, & financially constrained Gen Xers are given some flexibility. 1. Introduce auto-escalation and commit to phasing in matched employer contributions. 2. Introduce ‘nudges’ to encourage those who pay off debts to save more into their pension. E.g., those who pay off a mortgage or student loan 3. Set out a timetable to increase current (employer & employee) default AE contribution rates 4. Increase access to ‘sidecar’ savings vehicles, including for employees. • Expand AE to self-employed workers into a traditional pension or a side- car & auto-enrol those earning below AE threshold into a side-car scheme. “…vehicles that enable you to manage when you’ve built up enough rainy-day money and then save the rest of it…are potentially more effective for the self- employed.”
  19. 19. Making information more accessible Most Gen Xers want more information on how much to roughly save to achieve their goals & how to keep track of multiple pension pots. We need to: 1. Make it easier for people to see if their pension savings are on track • Eventually incorporate ball-park saving levels required to achieve different living standards in retirement into Pensions Dashboard 2. Increase uptake of guidance (increase awareness & available guidance options) • Explore ways to increase the awareness & uptake of Pensions Wise guidance. Trial Pensions Wise guidance sessions for people aged 40+, focused on accumulation. • Require employers to give new employees information about pension contributions and how they affect living standards in later life. 3. Increase access to affordable advice “I can't imagine anyone would think there’s the information out there to be honest. And I really I don't think that people are being educated about it...”
  20. 20. Summary • While some may be prepared, 1 in 3 are especially under-prepared for retirement • Many are pessimistic about retirement but others may be sleep-walking into hardship • The majority want to save more but are held-back by a number of barriers • Policy makers will need to focus on particularly disadvantaged groups • What needs to be done: • Address wider affordability challenges • Build on the success of AE, but offer some flexibility • Make information on retirement planning more accessible
  21. 21. Lord Hutton of Furness Join the conversation: @ilcuk #Generation X
  22. 22. Rt Hon Jonathan Reynolds MP Shadow Secretary of State for Work and Pensions Join the conversation: @ilcuk #Generation X
  23. 23. Simoney Kyriakou Senior Editor, FT Adviser Join the conversation: @ilcuk #Generation X
  24. 24. Chris Curry Director, Pensions Policy Institute (PPI) Join the conversation: @ilcuk #Generation X
  25. 25. Q&A Please submit your questions to panellists via the Q&A tab Join the conversation: @ilcuk #Generation X
  26. 26. Closing remarks Jackie Wells, ILC Associate Join the conversation: @ilcuk #Generation X
  27. 27. Making the extra years count: Inequalities in disability and dependency with increasing longevity Register at @ilcuk #HealthyYears Speakers include: Prof Sir Michael Marmot (UCL Institute of Health Equity), Baroness Young of Old Scone, Prof Sir Muir Gray (Optimal Ageing Programme), Dr Alison Giles (Public Health England), Prof Les Mayhew (ILC) Date: Wednesday, 24 March 2021 Time: 2.00pm – 3.30pm GMT
  28. 28. Thank you Join the conversation: @ilcuk #Generation X