REBA’s inside track: the looming Generation X crisis that employers can’t ignore
Covid-19 has put the financial future of all employees into sharp focus, and those of younger workers in particular. They have not only been hardest hit by the pandemic in terms of job losses or wage cuts, but they also could bear the brunt of pay scarring plus punitive tax regimes for years to come.
It sounds churlish, then, to raise the plight of Generation X (born 1965 to 1980) in the face of such enormous pressures on other generations at work. Home ownership is high in this group – around 60% at age 45, according to figures from the Resolution Foundation – and REBA hears regularly from reward professionals struggling with benefits for senior employees (many of whom will be Generation-X) who have already hit the pensions Lifetime Allowance (LTA).
But not everything is rosy. While the LTA is a problem for higher, and even some middle, earners, that is far from universal. All of Generation X are fast approaching retirement – and around a third are far from well-equipped for it.
Research published by the International Longevity Centre UK (ILC-UK) has shown that at least one in three people in Generation X are likely to reach retirement with minimal retirement incomes. Forty-eight per cent of its Generation X respondents expect to be worse off than their parents in retirement – hardly a great leap forward for employee benefits.
This age group are in a unique position when it comes to retirement saving: the defined benefit pensions that supported Baby Boomers won’t form a meaningful part of their retirement income; but they do not have the long-term time horizon needed to really benefit from auto-enrolment. While it’s tempting to think of the defined benefit pensions era as a gold-plated, rose-tinted wonderland, it’s worth remembering that many employees had no workplace pension at all before auto-enrolment.
Not only did Generation X arrive just as the lights were being turned off at the defined benefit party, they are also the freedom and choice era’s guinea pigs. They are the first generation to have to shoulder the investment risk for their own retirement income, and must then make decisions on what to do with it, often with no clear picture of what their savings equate to in terms of retirement income.
The affordable financial advice market is very much a work in progress, with a report released by the Financial Conduct Authority showing that more innovation and more accessible services are vital. We are also still very much in the first-generation of drawdown products. These have yet to show whether they, and the communications around them, are genuinely capable of delivering a solution that will prevent investors from running out of money at a time in life when they are unable to go back and earn some more.
These are real concerns for millions of employees, and there is very little time left to fix it for them. REBA’s Pensions and Master Trusts research showed that reward and benefits directors understand the concern – 88% of respondents said that helping staff understand their financial needs for retirement was a key priority for employee engagement with retirement saving. But, only 11% said that reviewing at-retirement options was a top priority for their auto-enrolment scheme next year, and just one-fifth (20%) rated helping employees approaching retirement who are affected by Covid-19 as important.
Good quality pension provision plays a key part in this. If your scheme doesn’t offer employees support in understanding what their savings mean for retirement, well-managed drawdown options and the ability to see pension savings as part of their wider financial situation, it is failing your workforce.
New, burning financial wellbeing priorities will affect every employee group in 2021. A generation of homeowners, some of whom have hit the LTA, might not appear to be a priority. But affordable financial advice, robust at-retirement options and a proper understanding of what retirement will look like (and how there’s still time to improve it) should be priorities for providers, employers and government alike.
The author is Maggie Williams, content director at REBA.
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