Pension black hole looming for Generation X

66% of older defined contribution pension savers are not saving enough.

• Generation X (now aged between 43 and 58), are the forgotten generation, facing a pension black hole in their pension saving.

DWP data Analysis of future pension incomes on 3 March, shows a looming disaster for many Gen X pension savers in defined contribution schemes currently in their 40s and 50s. 

This sub-set of figures could have been easily missed and feature the accompanying data tables on page 10. But they are significant because they show the challenge facing middle-aged workers in the coming years, given the prevalence of DC schemes. 

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This is the generation who missed out on defined benefit (DB) pensions, which had largely been closed to new employees, and also missed out on auto-enrolment from a young age. 

These latest figures highlights the need for pensions dashboards to help older workers keep track of their pensions. 

38% of workers are not currently saving enough for retirement, but this under-saving is concentrated in certain age groups, with 59% of those with a DC pension who are retiring in the 2030s not saving enough. In contrast, 34% of defined benefit pension savers are currently facing a pension shortfall.

The figures also demonstrate the impact taking a tax-free lump sum can have on your retirement income. After taking a lump from their pension, 66% of those with a DC pension, savers who are retiring in the 2030s, are not saving enough. In contrast, 34% of defined benefit pension savers in the same age group who have taken a tax-free lump sum are currently facing a pension shortfall.

Alice Guy, Head of Pensions and Savings at interactive investor, says: “Generation X, now aged between 43 and 58, are the forgotten generation, facing a huge pension black hole in their pension saving. Most are reliant on defined contribution pensions, which weren’t offered by all employers until auto-enrolment rules were introduced in stages from 2012. For someone now aged 60, this means they may have only had access to a workplace pension since around aged 50, leaving them with a huge pension gap.

“Given these figures, it’s extremely disappointing that the government have decided to push back pension dashboard legislation. Time is running out for older workers to get on top of their pension saving and the delay will make it harder for older workers to keep track of all their pensions and see if they’re saving enough.”

Key stats

• Those retiring in 2030s:
  • 59% of DC pension savers will reach state pension age with inadequate pension savings before taking their lump sum, compared to 34% of DB pension savers
  • 66% of DC pension savers will reach state pension age with inadequate pension savings after taking a lump sum, compared to 34% of DB pension savers (10)
• Those retiring in 2040s
  • 52% of DC pension savers with inadequate pension savings, compared to 35% of DB pension savers
  • 59% of DC pension savers with inadequate pension savings after taking a lump sum, compared to 32% of DB pension savers
• Those retiring in 2060s
  • 31% of DC pension savers with inadequate pension, compared to 33% of DB pension savers
  • 41% of DC pension savers with inadequate pension savings after taking a lump sum, compared to 38% of DB pension savers

Assumptions: no housing costs, retire at state pension age.

Alice Guy continues: “It’s extremely worrying that so many pension savers retiring in the 2030s are facing a pension shortfall as they have only around 10 years of working life to make up the difference.

“We can also see a pension gap opening up between those with generous defined benefit pensions and those with defined contribution pensions. Most private defined benefit pension schemes are now closed to new members, so most workers are now reliant on defined contribution pensions. Defined contribution pensions rely on pension savers and employers saving into a pension pot, which is usually invested in the stock market. Unlike defined benefit pensions, this pot fluctuates over time and the pension income you receive isn’t guaranteed.

“Those who are younger have more time to make up the difference and the good news is that most younger pension savers are currently on course for a comfortable retirement.

“It’s important to keep an eye on your pension and see if you’re on track for a comfortable retirement. Everyone’s income needs are different and will depend on other factors like if you have housing costs, your household bills and your discretionary spending on eating out or holidays.

“If you can afford it, then consider contributing more than your employers’ standard amount to your pension scheme. Even small extra amounts add up over time and you’ll get an additional boost from the taxman: a £80 pension contribution is topped up to £100 for basic-rate taxpayers. Higher-rate taxpayers get an additional boost from pension tax relief, increasing a £60 pension contribution to £100.

“If you are approaching retirement, it’s worth taking stock of your pensions. Many older workers lose track of previous workplace pensions as the average worker has six different jobs during their working life, potentially leaving them with a trail of small pension pots scattered across many providers. The government pension tracing service is a good place to start.

“Other tips to give a lagging pension pot a boost include taking a look at your pension fees and charges as these mount up over time and take a bite from your pension savings. It’s also worth considering consolidating pension pots to make them easier to manage and potentially save on fees.”