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Retirement

Post-war pension boom ‘is coming to an end’

Tahmina Mannan
Written By:
Tahmina Mannan
Posted:
Updated:
17/12/2013

Those born in the 1960s and 1970s could become the first generation since World War II to be worse off than their parents, a new study has found.

According to a report published by economic think-tank, the Institute for Fiscal Studies (IFS), the children of these decades are less likely to own their own home, much more likely to have a smaller state and private pensions, and have little in savings.

Those born in the 1960s and 1970s did have higher incomes during early adulthood than their predecessors, but they failed to save more than the previous generations at the same stages in life.

The report found that the only way in which these generations can secure a healthy financial future is if they stand to inherit wealth from their parents.

Only those who are left a large cash or property inheritance from their parents or grandparents can expect to enjoy a more comfortable retirement than the previous generation, the report concluded.

Andrew Hood, a research economist at IFS and an author of the report, said: “Since the Second World War, successive cohorts have enjoyed higher incomes and living standards than their parents. Yet the incomes and wealth of those born in the 1960s and 1970s look no higher than the cohorts who came before them.

“As a result, younger cohorts are likely to have to rely on inheritances to be better off in retirement than their predecessors. But inheritances are unequally distributed, with households that are already relatively wealthy far more likely to benefit.”

However, the IFS report also found that in many cases, the cost of old-age care is likely to eat up much if not all of the inheritance pensioners expected to leave later generations. This is despite the government’s pledge to introduce a £72,000 cap on care bills.

Tom McPhail, head of pensions research at Hargreaves Lansdown, warns that this may become the norm for future generations to come.

He said: “The IFS report paints a predictably bleak picture of the future prospects for those born in the 1960s and 70s. Based on current trends it is probably safe to assume that the future looks no brighter for subsequent generations.

“As a country and as individuals we are living beyond our means, spending our wealth today with not enough thought for the needs of tomorrow. Our long term savings have consistently been below levels necessary to ensure a prosperous old age. The decline of final salary pension schemes, from a highpoint in the mid-1960s through to today has not been offset by a compensating increase in defined contribution pensions. The average total contribution into such schemes today is around 9% of income. This is not enough.”

McPhail warned that as a broad indicator, people should aim to save at least 12% of their income on a regular basis.

McPhail added: “For the adults born in the 1980s and 1990s the prospects look even worse as they will be saddled with not just the burden of their own costs, such as university education but also the consequences of their parents’ profligacy. The huge increase in the retired population, with around one third of babies born this year now expected to reach the age of 100 means that the country’s health and care costs will inevitably spiral upwards, consuming a larger and larger share of state spending and private wealth.

“Never mind inheritances, at the present rate, the only financial bequest we are going to leave to future generations will be costs and liabilities.”