The other millennium bug: Gen X apprehensive after slipping between DB and DC cracks

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The tail-off in defined benefit (DB) pension provision around the millennium and a lack of compulsion around defined contribution (DC) saving until 2012 has had a lasting impact as Standard Life’s Retirement Voice report finds: 

• Majority of Gen X (54%) are worried their finances won’t cover their retirement – compared to 31% among Baby Boomers
• 45% Gen X expect their living standard to be worse in retirement compared to 29% of Millennials
• Gen X most likely group to be relying on their current property and inheritance to fund retirement over a pension
• Millennials by contrast are more positive about retirement outlook but findings may reflect changing expectations
• It’s never too late to take action with analysis highlighting the value of pension top-ups in closing any shortfall

New research¹ from Standard Life, part of Phoenix Group, identifies high levels of retirement apprehension among Gen X – those in their mid-40s to late 50s today – who were caught in the gap between two pension systems. 

A clear trend emerges from its latest Retirement Voice 2024 report which consistently found Gen X were more negative about their retirement prospects with 54% saying they worried their finances wouldn’t last compared to 31% of older Baby Boomers. Similarly, 45% said they expected to be worse off in retirement compared to 39% of Baby Boomers still working and 29% of Millennials.

This trend extends to other aspects of the different generations’ finances with Gen X the group most likely to be planning around pension alternatives with 17% looking to use an inheritance or the property they currently live in (9%) to fund retirement. At a day-to-day level 38% of Gen X said they felt positive about their current financial position compared to 56% of Baby Boomers and 48% of Millennials.

The DB DC gap

Defined benefit (DB) pensions were in steady decline around the millennium when Gen X were in the early parts of their working lives. In 2000, 9.1 million people were members of a DB pension scheme, a figure which dropped to 6.8 million by 2012².  Many of those no longer eligible for DB pensions will not have taken up a DC alternative which were far less widespread prior 2012 when auto-enrolment began to slowly roll out. This trend was confirmed by Standard Life’s research which found Baby Boomers were almost twice as likely (39%) to be members of a DB scheme compared to Gen X (22%). 

Millennials bucking stereotypes with more positive retirement outlook

The research also showed that Millennials have a more optimistic outlook, with almost half (45%) feeling confident they’re saving enough to have a comfortable retirement, compared to just a third (34%) of Gen X. This may reflect changing attitudes towards the more traditional concept of retirement, with Millennials anticipating they will have longer to build up their pension as they are more likely to expect to work beyond their state pension age than Gen X (51% and 42% respectively). Fewer Millennials (51%) also intend to rely on the state pension as a source of income in retirement than Gen X (66%), suggesting they realise they need to take responsibility for their retirement provision and recognise the pressures on the current system. However, Millennials are feeling more of the squeeze on their short term finances, with 74% adopting a more cautious attitude towards their finances because of the cost of living issues, compared to 69% of Gen X.

Mike Ambery, Retirement Savings Director at Standard Life, part of Phoenix Group said: “People in their 40s and 50s were caught in the gap in our pension system with many both too young or unaware of the options in order get the full benefits of either pension system. As they approach retirement, they’re clearly concerned about the impact this will have on their retirement lifestyle, and understandably relying on the state pension and its indexation as well as their private pension and other income sources such as property ownership to supplement their retirement.

“In some ways it’s no surprise that Baby Boomers are broadly positive about retirement given the economic tailwinds many have enjoyed but the fact Millennials are more optimistic than Gen X suggests auto-enrolment is giving many the foundations of a retirement income. The challenge for this younger group is more around how to build financial resilience in the short-term and the issue of getting on the property ladder.”

Is it too late for Gen X to save? How to close the gap

The good news is that increasing contributions later in life can have a significant positive impact on retirement outcomes and go some way towards making up any shortfall. Standard Life calculations find that someone who began working full-time with a salary of £25,000 per year and paid the minimum monthly auto-enrolment contributions of 8% (5% employee, 3% employer) from age of 22, with no breaks, could amass a total retirement fund of £192,000 in today’s prices at the age of 66*, adjusted for 2% inflation over the course of their career. However, someone who chose to increase their contributions by 3% to a total of 11% (8% employee, 3% employer) from the age of 45 could build up a pot of £224,000 in today’s prices by the same age, £32,000 more.

Someone starting to save at the age of 45, with no prior pension savings, could build up a pot of £190,000 in real terms by raising their contributions by 10% to 18% in total (15% employee, 3% employer) – almost the same level of savings as someone who had saved at the minimum level since the age of 22.

_{*assuming 3.50% salary growth per year, and 5% a year investment growth. Figures allow for 2% inflation. Annual Management Charge of 0.75% assumed. The figures are an illustration and are not guaranteed. Earning limits not applied.}

Mike Ambery continues: “While it will always be beneficial to save into a pension from as young an age as possible, boosting your pot later in life can still make a difference and benefit from tax efficiencies in saving. Forecasts⁴ predict the years 2040 to 2044 will be a crisis point with the highest number of under-savers entering retirement. Given many Gen X will be retiring during this period, it’s especially important that those who can afford to do so, top up contributions or make one off payments even as they approach retirement as this can help improve finances stretch further and improve retirement outcomes.” 

ENDS

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Notes to editors

1 - Ipsos Mori conducted research among 6,000 UK adults. Fieldwork was conducted between XX date and XX date 2024. Data was weighted post-fieldwork to ensure the data remained nationally representative on key demographics. 

2 - According to https://hrcentre.uk.brightmine.com/commentary-and-insights/a-changing-landscape-25-years-of-pensions/113461/ and  https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/pensionssavingsandinvestments/datasets/occupationalpensionschemessurvey

3 - Calculations assume the following:

Starting Salary	£25,000
Starting Age	22
Investment Growth	5.00%
Salary Growth	3.50%
Annual Investment Cost	0.75%

Calculations are intended only for the sole purpose of providing an illustration regarding the projection of savings and pensions. They should not be used with the intention to give an accurate representation of real-world outcomes. Figures allow for 2% inflation.

4 - Phoenix Insights’ report ‘Tomorrow’s problem? Analysing the future impact of DC pension undersaving’ was undertaken with Frontier Economics. The analysis used the Phoenix Insights Longer Lives Index data (a survey of around 16,500 people across the UK aged 25 and over who are not yet retired) to forecast the trajectory of new retirees’ financial situations, providing a timeline for how the problem of undersaving may crystallise for new defined contribution retirees.

About Standard Life 

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