Financial Throwdown: Baby Boomers, Millennials and Pension Saving
“Compared to today’s hard-up Millennials, Baby Boomers have sucked the marrow out of this country’s pension regime, its property market and its education system,” says Drewberry’s Pensions and Investments Expert, Neil Adams.
Neil continues, “Today’s retiring Baby Boomers are the wealthiest British generation yet and, based on the hurdles currently facing Millennials saving for retirement, they could be the richest generation this country ever produces.”
The raw numbers make grim reading for anyone currently under the age of 40, with only around 40% of those born in the early 80s owning their own home.
This puts Millennial home ownership at by far the lowest rate of any post-war generation in the UK. Those born in the early 80s also hold the dubious distinction of being the first post-war cohort to be worse off than their parents.
Thanks to eye-watering student debt, rapacious house prices, shrivelling company pension offerings, wage stagnation, cratering interest rates and the rise of the ‘Gig Economy’, is it any wonder that Millennials’ pensions aren’t the first thing on their mind?
Pensions & Investments Expert at Drewberry
Gigged Out? Millennials Can’t Save for Retirement
You don’t have to look far for further evidence of the inter-generational divide in the country. Last year’s Drewberry Wealth & Protection Survey found that almost 20% of the UK’s 25-34 year-olds still had no idea of how they’ll fund their retirement while this rose to 30% for those aged 18-24. Worryingly, more than 15% of the former had no pension provision at all, while almost 38% of 18-24 year-olds were in the same boat.
The rise of the Gig Economy has also found Millennials working under obscure contracts who aren’t certain whether their workplace is obligated to arrange their pension or if they need to independently organise a self-employed pension, which means that they potentially miss out on significant growth to their retirement pot.
Even if their employer doesn’t offer a pension, Millennials have options. As the number of self-employed workers continues to rise, particularly among the Millennial cohort, it’s essential to engage in proper planning when it comes to pensions for contractors.
Unfortunately for Millennials saving for retirement, there’s no quick fixes on the horizon. Improving their financial prospects comes down to working hard and saving even harder.
“They should also manage their expectations accordingly,” Neil says. This is because, “with so many calls on the income of the average Millennial, little job security, wage stagnation and far less generous pension provision, they’re never likely to achieve the same level of wealth they’ve seen their parents’ and grandparents’ generations enjoy.”
Many Millennials working in the Gig Economy aren’t aware that they may actually be eligible for a workplace pension.
Working Harder, Not Smarter: How to Boost Millennials’ Pensions
Based on the data currently available, the simple fact is that Millennials saving for retirement will have to work at least 10 years longer than their Baby Boomer predecessors did; and, when they finally reach retirement, they’re likely to be far less affluent than their forebears.
“Admittedly,” says Neil, “they’ll be healthier and they’ll live much longer lives than their Baby Boomer counterparts but, in financial terms, this just means they’ll be managing longer with less and Millennials’ pensions will need to be stretched.
“The one upside for the average Millennial,” he says, “is that they stand to inherit more wealth than any generation before them, much of it in the form of inherited pension wealth.
“This means that if Millennials want to enjoy some of the tremendous wealth accrued by their forebears, they’ll need to stay on good terms with their families and they’ll need access to advice that can help span that recurring generation gap.”
Of course, although Baby Boomers have benefited from a vast accumulation of wealth over the years, this means they could well face the biggest-ever inheritance tax bills.
To work out how much inheritance tax you could have to pay, use our free IHT Liability Calculator here →
Millennials saving for retirement need support more than ever to plan their financial future and with the many concerning changes to pensions occurring, including the impending increase of the state pension age, Millennials could be waiting for their state pension until they’re 70.
Pensions & Investments Expert