Are Generation X in for a pension shock?

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Overview

As a think tank focused on the future of retirement, we want to see more people have financial security and a decent standard of living in their later lives.

However, many people in Generation X (born between 1965 and 1980) are at risk of retiring with too little income and facing financial challenges in retirement. Many will have fallen between two pension systems, too late for widespread Defined Benefit (DB) and final salary schemes, but only having benefited from being automatically enrolled into Defined Contribution (DC) schemes for the latter part of their working lives.

Gen X are currently aged between 46 and 61, and most will be retiring in the 2030s and 2040s. People are most likely to start thinking about and planning for retirement in their 50s, and this generation will now be starting to take money from their private pensions for the first time.

We have sponsored new research by the Social Market Foundation, a cross-party think tank, to explore what retirement will look like for Gen X and how they might react if they experience a ‘pension shock’ when they start to plan for their retirement.

The research used interviews, focus groups and a survey with people in Gen X, which we have summarised along with some of the conclusions here:

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Key points from the research

• One in two people (54%) in Gen X could be at risk of inadequate incomes in retirement, according to the new SMF/Survation survey – this is a group of seven million people who may experience ‘pension shock’.
• One in seven (15%) are at risk of pension shock and also have no other assets to fall back on. This group lacks property, investments or other savings in addition to having inadequate private pensions. People in this group may be at risk of serious financial difficulty, or living in poverty, in retirement.
• Over half of Gen X (57%) have not thought about the cost of retirement. As a result, they may experience pension shock when they first take money from their pension or start to plan for retirement.
• After seeing their projected retirement income, people at risk of pension shock are more likely to say they feel angry, disappointed, worried and to feel they have been treated unfairly.
• While half (52%) think that they themselves are responsible for the size of their private pension savings, they also believe that Government, employers and the economy have played a role.

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What needs to change?

With this generation fast approaching retirement, there is an urgent need for change. While changes to the Automatic Enrolment default contribution rates would help people save more over the long term, we also need short- and medium-term solutions. We have highlighted three in our summary:

• The Pensions Commission should take a generational perspective to understand the specific challenges facing people in Gen X and to explore what needs to change to improve their chances of financial security in retirement.
• The government and the Money and Pensions Service (MaPS) should expand the use of Pension Wise alongside the launch of Pensions Dashboards – this is important with the MoneyHelper Pensions Dashboard expected to launch in 2027. This can help people when making decisions about how and when to use the private pension savings they do have.

• Government and employers should support people in Gen X to continue working for longer, including changing jobs and changing careers. The higher State Pension age of 67 adds to the importance of longer working lives for Gen X.

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The Social Market Foundation have published their full research report, which includes more detail on the research methods and results. You can read it on their website: