Personal Investing
Ed Monk, Fidelity Personal Investing 30 Mar 2017 03:15pm

Generation X: the difficult middle child of pensions

SPONSORED FEATURE: Pop psychology tells us that middle children have it rough. Denied the privileges of the eldest and the coddling of the youngest, the theory goes that middle children can end up feeling resentful, excluded and forgotten about

Caption: There are reasons for today's 38 to 51-year-olds to feel aggrieved by the current system.

Whether or not that holds for individual middle children (I write as one), there at signs that a whole generation of Britons are feeling “middle child syndrome”, at least when it comes to their retirement.

Members of “Generation X” - those now aged between 38 and 51 - have been identified in a landmark report this week as potentially suffering the most in the great ongoing reorganisation of UK pensions. More than older “baby boomers” (aged 52 to 72) and more than younger Generation Y (aged 17-37).

The report is the Independent Review of the State Pension Age, led by former Confederation of British Industries director general John Cridland, and is an important point in the journey of that reorganisation.

It represents a set of firm recommendations to Government about the future of the state pension, although ministers must now decide what from the report to take on and enshrine in law.
Grabbing the headlines are the report’s call for even faster rises to the state pension age and its suggestion that the “triple lock” - the promise to increase state pensions by the higher of inflation, the rate of wage rises or 2.5% - should be removed for the next parliament to make the system more sustainable.

But it also makes a point of singling out Generation X, identifying that this group will face a particularly nasty set of circumstances that mean many this group risk falling through the gaps of the pension system.

First of all, far fewer of Generation X will be able to rely on Defined Benefit workplace pension schemes. These offer an income calculated as a proportion of salary earned in working life and are common among baby boomers, They have tended to be more generous than alternative Defined Contribution schemes - those where income is reliant on the pot built from contributions - that younger people must make do with.

Generation Y-ers also suffer this, of course, but a greater chunk of the younger group will at least has benefitted from the “auto-enrolment” policy that was introduced in 2012 and which automatically places qualifying workers into a defined contribution scheme.

Additionally, Generation Y has more time on its side to contribute and have those contributions benefit from compounded investment returns.
That’s not the end of Generation X’s angst. ¬This group will also have the least time of any to digest and plan for rises in the state pension age, which the report recommends should increase more quickly to 68 by 2037-39.

There’s more to the story. The quality of retirement you can look forward to depends on much more than just the state pension, of course, and Generation X has been blessed in other ways.

Generation Y may well eye Generation X’s higher rate of home ownership and look witheringly upon any claim that the older group loses out on pensions - “I mean, like, seriously?”

Meanwhile, baby boomers will likely question the grumbling of a cohort that was handed down far greater opportunities for education and employment than they ever enjoyed - “You don’t know you’re born!”

The point, however, is that those members of Generation X who stand to really suffer under the current system are likely to be those who have not enjoyed these other generational benefits.
It isn’t all bad news for Gen X. The options for improving your retirement prospects are limited to either working longer or contributing more to a pension when you’re working, and Generation X-ers are at least at a point when their earning power is at or near its peak.

This makes them best placed to make the most of the current pension system of tax relief that is potentially most generous to high earners.

Ed Monk

Ed Monk

Ed joined Fidelity in 2016 following a 13-year career in newspaper journalism, most recently as investment editor at The Daily Telegraph. He was previously news editor and personal finance editor for, the money channel for Mail Online and has contributed articles to the Daily Mail.

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