Members of generation debt face threat to retirement dreams

04 November 2016

  • Nearly a quarter of under-40s can’t afford to save for a pension
  • Debt is the main reason under-40s are putting off saving for their retirement
  • Many aged 51-65 are supporting their families financially to the detriment of their own pension

Debt among younger generations could fuel a future retirement crisis according to newly-released research from Prudential. The new in-depth study of pension saving among people aged 21-65 found that nearly a quarter (24 per cent) of under-40s say they cannot afford to save into a pension. 

The results of the Intergenerational Retirement Study highlight a generational divide in pension provision that looks set to grow as younger generations face continuing financial pressures that were unknown to those now approaching retirement. The cost of education and the rising cost of getting on the housing ladder mean that nearly half (48 per cent) of under-40s who say they can’t afford to save for a pension cite debts as the main reason.

The research shows that levels of debt fall dramatically as people get closer to retirement. The average amount owed by all those aged 21-30 (including those with no debt) is £21,700. The figure peaks at £33,100 among the 31-40 age group, then falls to £30,200 for the 41-50s, and £12,600 among 51-65 year olds. 

Prudential’s figures also highlight how taking a first step on the housing ladder later in life could be impacting the younger generation’s ability to make pension contributions until well into their careers. The highest average amount owed by those who have a mortgage – nearly £116,000 – is in the 31-40 age group, and even among those aged 41-50, one in five (20 per cent) can’t afford to make any pension contributions.

However, the trend for providing increasing levels of financial support in later life to family members means that it’s not an easy ride for people hoping to top up their pensions as they approach retirement. The proportion of those who say that giving family financial support is the reason they can’t afford to make pension contributions increases from just under a quarter (24 per cent) of the 21-30 age group, to 31 per cent of 31-40 year olds, 39 per cent of those aged 41-50, to over half (53 per cent) of 51-65 year olds. 

Kirsty Anderson, a retirement income expert at Prudential, said: “Saving into a pension has always been about building up a retirement fund over the long term. But our latest research shows that modern-day financial pressures are forcing people of all ages to risk their future by putting pension saving on the back burner.  

“It is particularly concerning to see a new generation of workers who have spent years clearing student debts only to be forced to wait much longer than their parents to get a foot on the housing ladder. As a result people in their 30s and 40s, instead of making the contributions that could make a meaningful difference to their retirement pot, are struggling to save for a deposit, make mortgage payments or simply support their families.

“Even the smallest pension contributions made during a saver’s 20s and 30s will be invested for up to 30 years or more, and will have the opportunity to grow significantly. Those who are members of a workplace scheme will also benefit from employer contributions, and for many people, a consultation with a professional financial adviser will help them to put together a retirement saving plan to suit their circumstances.”    

Prudential’s research also found that for younger generations, debt has an impact far wider than just on their retirement savings. Over a third (34 per cent) of those aged 21-30 are worried about their levels of personal debt and 55 per cent claim that debts impact their happiness and well-being. For the 51-65 age group the figures drop to just eight per cent who worry about their debt and 25 per cent whose debts impact their happiness. 


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