A policy solution is needed if members of Generation X – collective name given to those born between 1965 and 1980 – are to avoid a pensions crisis when they retire, said Phil Brown, director of policy and external affairs at B&CE, provider of The People’s Pension.
Speaking at the Labour Party Conference yesterday, Brown warned that millions face a reduction of living standards in retirement. He told the audience that 8 in 10 people currently saving into a defined contribution (DC) pension are not likely to hit the standard adequacy measures set out by the Pensions Commission of 2005.
Brown also said research from B&CE, which provides pensions to nearly six million people or 1 in 5 of the UK workforce, showed that 6 in 10 (62%) of automatic enrolment savers who receive minimum contributions to their pensions mistakenly believe they are on course for a comfortable retirement.
He said that younger generations who, unlike older baby boomers, don’t have access to final salary pensions were at particular risk of not being able to afford to retire. He focused on Generation X, who are aged between 42 and 57, who he explained lost out due to the withdrawal of defined benefit (DB) workplace pensions and then found that auto-enrolment came too late to make up the shortfall.
He said much of this age group will be relying upon releasing equity in their homes or delaying retirement to help make up the shortfall in their retirement income.
Brown also told delegates that although additional pension might make a difference for some, it wouldn’t make a difference for all. He said that a new policy approach was needed to help lessen this impending crisis.
“There is no easy way forward and increased pension saving may not be the only choice. Getting to an adequate retirement income for this age cohort is likely to involve a combination downsizing the house, later working and perhaps increased saving in the time they have left,” he said.
“It’s important that policy makers begin thinking about this one now as it’s going to get harder to solve as the 2030s come around,” he added.
Brown acknowledged that younger Millennials might benefit from additional pension saving but said: “As a pension provider, it’s not for us to make recommendations about levels of saving. It’s for politicians, employers and trade unions to reach a consensus on how pensions should be funded.”
He added: “We think, after the dust has settled from the current economic crisis, we need a new consensus and new adequacy objectives set for UK pension policy, so that we what outcomes pension policy is set to achieve for the average saver.”
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