Late pension, high house prices, debt: Can policy save retirement for GenX?

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Generation X have largely fallen into the gap between the decline of defined benefit and the introduction of auto-enrolment and many are thought to be at risk in retirement. A new report pulls together key stats and offers recommendations that could give some hope to ‘Generation VeXed’. 
Sandwiched between baby boomers and millennials, those born between 1966 and 1980 are now 12 to 28 years away from retirement. But can they afford to retire?

A new report by the Pensions Policy Institute about ‘Generation VeXed: Solving the retirement puzzle’, sponsored by insurer Phoenix Group, shows a bleak picture for this cohort – though not as bleak as for millennials. 
On the latter, the report only offers the possibility of future policy changes that could improve their lot; they are the most likely to be casually or self-employed and least likely to ever own a home.  
The focus lies on Gen X – doubtless the guinea pig generation for defined contribution – which as well as suffering from the issues that affect millennials if to a lesser degree, tend to live longer than their parents, raising the prospect of increased care needs – and greater likelihood that they will need to provide care – at older ages. Slow earnings growth in the past decade has not helped either. 
The PPI scored the three cohorts on a retirement index to show which are most at risk, based on adequacy, sustainability and flexibility of their income in retirement, including housing and other wealth. More than half of 9m millennials (53%) were found to be at risk, while a third of the 4.3m in Gen X fell into this category, as did over a quarter (26%) of 4m baby boomers.
Source: Pensions Policy Institute
It’s not just the decline of DB, low wage growth and a changing economy that are behind this shift; the new state pension plays its part. The PPI claims that 46% of GenXers aged 43 to 52 will receive a state pension income that is about £13,000 lower over their lifetime than they would have received under the old system. Among baby boomers, a quarter will also receive less state pension. 

The state pension could become a greater proportion of overall pension income if the triple lock remains in place, but by law, it only has to increase with earnings – so a future government could remove the triple lock mechanism. 

PPI: Govt must adjust AE and tax system to new reality 

As well as increasing auto-enrolment contributions and finally implementing the recommendations from the 2017 Automatic Enrolment Review – such as lowering the eligibility age and earnings threshold – the government should act on the fact that older people will in future have lower living standards, says the PPI.  
The projected lower incomes and higher expenditure of future pensioners compared with baby boomers should be recognised in the tax system, it says, by changing tax bands or personal allowance levels for retirees. Currently, the same income tax restrictions apply to pensioners – however, they are exempt from paying national insurance contributions and can take a quarter of their pension pot tax free at retirement. 
The pensions industry should react to the changing backdrop by providing hybrid drawdown/annuity products, online tools for calculating the saving requirements, and financial education in the workplace, the PPI has suggested.
One problem outside the control of the pensions industry is housing wealth; UK house prices almost quadrupled in 30 years and as a consequence, housing wealth among younger people has gone down, being close to non-existent among millennials, while the average first-time buyer age has gone up by five years.
The number of people having to rent in retirement will increase – and the need to pay rent at this stage of life, according to the PPI, is the strongest indicator that people will have less disposable income in retirement. 

Perhaps paradoxically, access to housing benefit may be lost if renting pensioners have saved into a private pension. The PPI says that this amounts to a disincentive to save into a private pension for those expecting to rent in retirement – and calls on the government to change this, ensuring that pension saving makes sense for everyone.

Which policy change is most needed to improve retirement for younger cohorts?