On the go: The Financial Conduct Authority’s new discussion paper on intergenerational shifts highlights the disparity in pensions, mortgages, consumer credit and insurance coverage of UK citizens from millennials to baby boomers.
The report, published on May 2, shows that people of working age had less total wealth compared with people of the same age 10 years earlier.
The median person starts accumulating property wealth four years later (34 in 2014-16 from 30 in 2006-08). In particular, Generation X (born between 1966 and 1980) are more financially stretched than before.
For those nearing retirement, however, only half have given a great deal of thought to how they will manage once they are no longer working. Funding later-life care costs represents a significant area of future uncertainty for older age groups.
Current experience indicates that only a small number of people face significant end-of-life costs for long, the FCA highlighted, but added that this number is expected to grow.
While Generation X tends to have higher than average incomes, many are unable to set aside enough money for their pension or to save for emergencies. This leaves them open to financial shocks.
They have lower than average cash savings and the highest amount of unsecured debt – excluding student loans. However, they too have often benefitted from rises in house prices and low borrowing costs. Those who will inherit wealth from their parents will do so nearer to the time they themselves retire.
Millennials face a series of difficulties in building wealth. This is due to the combined impact of rising house prices, insecure employment, and higher debt (including student debt) – which limits their ability to save for retirement during core earning years.
Not all is doom and gloom for the young, as Tom Selby, senior analyst at AJ Bell, pointed out: They are “being boosted by auto-enrolment, with matched contributions and value-for-money pensions now a legal right for most workers. Older workers, on the other hand, were entirely at the whim of their employer and many had no opportunity to build up private pension wealth at all”.
He added that there is an argument to say those caught in the middle – Generation X – face the biggest retirement savings challenge.
“Many will have just missed the boat on DB and will only benefit from auto-enrolment in their 40s, meaning they will face an uphill task in building a decent pension pot,” he noted.
