PLSA survey finds generational divide in retirement prospects

A new survey from the Pensions and Lifetime Savings Association (PLSA) analyses the incomes that different generations of Britons are likely to receive in retirement.

Overall, the PLSA found that of 25.5 million people in employment, 1.6 million are at high risk of falling short of a minimum income standard, while 13.6 million are at risk of not hitting their target replacement rate. PLSA director of external affairs, Graham Vidler, commented: “Automatic enrolment is set to deliver a tangible improvement in the retirement incomes of millions of people but there is still work to do. For younger savers, increasing their automatic enrolment contributions from 8% to 12% and working slightly longer puts them on track for their target replacement rate (TRR). For older workers, who have less time to save, achieving their target replacement rate may also require a decision to save more or use other assets, such as property, if they have them.”

According to the survey, millennials (those born after 1980), will experience a full basic state pension and saving through auto-enrolment, but for DC members, this will not be enough to reach a TRR. That will need higher contributions and longer working lives. Generation X, or those born between 1963 and 1980, are the generation caught between the slow decline of DB pensions and the start of automatic enrolment. Many have not saved enough in the past, and are not doing so at the low contribution rates currently applying under auto-enrolment. This means that Generation X has a higher jump to TRR than millennials. As a result, they may need to work longer and use assets such as property to generate a higher retirement income.

The post-war baby boom generation is split between those with accrued DB pensions who have very good retirement prospects, and others with much poorer prospects. Many of the latter will have to work longer though the majority of this generation has some property wealth they can use to generate an income in retirement.