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Millennials and Generation X to fall short of baby boomer pensions

A recent report by the Institute and Faculty of Actuaries suggests that millennials and Generation X – those born between 1966 and 2000 – won’t come close to the generous pension provisions that the baby boomers – those born 1946 to 1965 – are currently enjoying.

The ‘golden generation’ are now at, or reaching, retirement age and are very likely to have been a member of their employer’s defined benefit scheme for a significant period of their working life. These schemes are now predominately closed to new entrants and ‘youngsters’ now must join a defined contribution arrangement, which generally offer substandard benefits compared to those of their defined benefit counterparts.

Combined with having to work longer, as the State Pension age continues to rise, the younger generations are in for a pretty raw deal.

What can be done?

As unfair as it may seem, those in their twenties, thirties and forties must take action now to help themselves if they want a comfortable retirement. They can’t assume that the State Pension will be enough to live on when they eventually retire. The key is knowing how much to put away. My rule of thumb is that if someone wants a decent level of income in retirement the amount to save, which includes contributions from employers, should be half someone’s age. So, a forty year old should be saving 20% of their income towards their retirement provision. Maybe a tough ask but the younger generation need to be aware of the stark facts.

Another alternative, is for the government to reduce or remove some or all of the guarantees on benefits already built up in defined benefit arrangements to help reduce deficits. Employers could then divert contributions toward the younger generations’ defined contribution schemes. This would mean a fall in baby boomer’s benefits and an increase in the millennials and Generation X’s benefits, and perhaps an all-round more level playing field between the generations.