Over the past few decades, different generations have prepared for retirement in contrasting ways, which extend to pensions and savings. So how does each generation compare when it comes to securing a comfortable financial future?
In this article, we have explored some data behind pension savings for different demographics in the UK and how they are currently faring against each other.
Millennial pension portfolios are lacking
One generation who might not be prepared for retirement is millennials. So are millennials putting enough of their money into their pensions? For a decent retirement, the typical millennial pension portfolio in the UK is currently substantially smaller than it needs to be.
For example, it is advised that adults between the ages of 35 and 44 have £30,000 in private pensions. Yet the ONS reports that 50% of this age group, part of the age group commonly referred to as millennials, have less than that £30,000 figure in their pots.
The Pensions and Lifetime Savings Association estimates that, assuming they are mortgage and rent-free, a single person will require a retirement income of about £37,300 per year for a “comfortable” retirement lifestyle. For 2023–2024, the entire state pension is £10,600 per year. Therefore, without the ability to rely on the state pension, it’s vital for millennials and any other age group to save as much as possible.
Comparing different generations potential retirements
It would be no surprise to say Millennials are behind older generations, such as Gen X and baby boomers regarding their pensions. However, millennials might be trailing even Generation Z, the generation immediately younger than them, when it comes to their retirement. In fact, Gen Z savers say they will have more money saved up for retirement than both Millennials and Gen Xers, according to PensionBee.
This may seem like hubris on Gen Z’s part; however, the typical millennial pension pot is £22,049 today, and Gen Z is closely following their forebears with an average pot of £21,765, only just behind millennials. This close gap could be down to the implementation of the Auto-Enrolment scheme, which forces companies to contribute to the workplace pensions of eligible personnel.
Once a person passes the automatic enrolment earnings threshold, 5% of their pre-tax salary goes straight into their pension to be topped up by their employer, unless they actively opt out or their firm has a more generous scheme. This policy seems to have aided Gen Z regarding saving into their pension more than millennials.
Also, according to a recent PensionBee study, Gen Z is the group most knowledgeable about pension savings. 23% of Gen Z respondents admitted to not knowing how much money they had saved for retirement, and only 3% said they had not even begun saving. In contrast, a quarter (26%) of Millennials claimed they were unsure of their savings amount.
Despite thinking they are saving as much as they can, more than a third of millennials (37%) still don’t think they have enough money set aside for a decent retirement. Another 16% of respondents believe they will never be able to afford to retire. This puts into perspective the serious issues many millennials face when it comes to their pensions.
Why some generations could struggle with retirement
It looks like a significant amount of millennials are not prepared for retirement, so why is this the case? One reason could be that millennials work more flexibly and are often in more than one short-term job, which could involve zero-hours contracts and ‘gig economy’ work. This makes saving for the long term a trickier and less attractive option if their employment isn’t as secure.
Gen Z will and are suffering a similar fate regarding employment conditions, but because of the Auto-Enrolment scheme, they have been sheltered by the effects of the new modern economy concerning their pension. Older millennials, who were born pre-1990 and after 1980, may have been caught in the wrong place at the wrong time.
Gen Z’s tech literacy
Gen Z is also the first generation to have had little to no exposure to a pre-internet world and the first to have spent nearly their entire lives immersed in online media. The ‘plugged in, always on’ mentality may have significantly aided them in staying informed about the difficulties they would face in later life, such as their pension.
77% of Gen Z know exactly how much they’ve saved for retirement. In contrast, only 74% of Millennials and a dismally low 66% of Gen-Xers were aware. The fact that Gen Z has only recently begun saving may contribute partly to this (because there is less to keep track of). Still, it’s also possible that being more technologically savvy is helpful.
While Gen-X and even many older millennials are likely still dependent on annual paper pension statements, which are easily lost or misplaced, Gen-Z is the most likely to have everything on their phones, including online pension statements.
What all generations should know about retirement
Whatever generation you are in, there’s still time to get prepared for retirement. If you are a millennial, you still have 20 to 35 years to take steps and give their pension a much needed boost. The main takeaway from all of this data is that you should always increase your retirement savings, regardless of the time of year.
Don’t panic if you are a millennial who left it too late; a few extra years of saving can go a long way. Additionally, if you’re a Gen Z saver, keep contributing to your pension. The possibilities are almost endless when you have 40 years of compound interest on your side.
If you want to know more about pensions, or wish to transfer your pension overseas to a new nation, then Brite can advise you on what to do. Several types of pension schemes are available – including QROPS (or ROPS), QNUPS or a SIPP.
If you want to take full advantage of your pension’s potential, contact Brite here.
