A recent report from Financial Planning Today found that more than half (54%) of people born between 1965 and 1980 – known as Generation X – are heading for inadequate retirement income.
Other findings include:
- 39% will fall short of their current standard of living
- 35% could fall below the current minimum living standards.
If you’re a member of the “forgotten” generation, learn why your finances need careful attention and how to remain on track for a comfortable retirement.
Gen X are caught between two pension systems, but typically benefit from neither
Pensions Age has found that more than half of Gen X are heading for a “pension shock” when they retire. 7.5 million are projected to have retirement incomes below what is needed to maintain their current standard of living.
One of the most significant reasons for this shortfall is timing.
Gen X came into the workforce too late to take full advantage of more widespread private defined benefit (DB) schemes – which provide a guaranteed, fixed income for life based on salary and service length. According to the Pensions Policy Institute, the number of private workplaces offering DB pensions declined in the early 1970s, likely due to cost-effectiveness issues.
Similarly, Gen X entered the workforce before the introduction of pension auto-enrolment, which came into force in 2012.
This requires employers to add workers aged between 22 and State Pension Age who earned more than £10,000 a year to a workplace pension scheme. On top of this, employers need to provide a minimum 3% pension contribution on employees’ behalf.
Gen X were “too late” for DB pensions and “too early” for auto-enrolment, putting them at a disadvantage when it came to pension savings.
51% of “sandwich carers” – those with younger and older dependents – are aged 45 to 64
Gen X are also subject to disproportionately high costs of care, as they are more likely to fall into the “sandwich carer” category compared to other generations.
Sandwich carers refer to those who have dual care responsibilities for both younger dependents (like children) and older dependents (often parents).
According to the Office for National Statistics (ONS), between 2021 and 2023, there were 1.4 million carers in the UK aged 16 to 64 years, 51% of whom were members of Gen X.
The cost of unpaid care is measured in time – the ONS found that almost a quarter of sandwich carers provide more than 20 hours a week of unpaid care.
The financial consequences of this are tangible. MoneyWeek finds that unpaid carers lose, on average, £522 a month, or £6,268 a year. Additionally, 1 in 7 carers reported that their monthly income had been reduced by more than £1,000.
In terms of retirement wealth, research reported by Pensions Age has also found that the average pension income for a carer has fallen to 49% of the national average. This figure is down from 55% in 2020.
Four strategies to help you close the Gen X retirement savings gap
Despite the challenges facing Gen X, it’s not all doom and gloom.
With careful planning, you can take practical steps to close the wealth gap standing between you and your dream retirement.
- Track down lost or missing pension pots
A report from Pensions UK has found that a staggering £31.1 billion remains unclaimed in UK pension pots.
Finding your missing funds could help provide you with an immediate boost to your retirement income.
You can begin this process by using HMRC’s Pension Tracing Service online.
- Boost your pension contributions where possible and appropriate
Pension contributions are both tax-efficient and benefit from compound growth – the sooner you start contributing, the more opportunity your wealth has for growth.
Even increasing your pension contributions by as little as 1% a month can help you gradually close the gap.
However, it’s important you increase your pension contributions to a reasonable degree and not to the detriment of your current standard of living. You also need to consider the pensions Annual Allowance, which limits the tax-efficient contributions you can make each year.
We can help you make affordable and tax-efficient contributions.
- Consider tax efficiency when saving and investing for your future
There are various opportunities to improve your tax efficiency, meaning that ultimately, you could keep more of your hard-earned money for yourself and your family.
For example, you could leverage your ISAs to build wealth for retirement alongside your pension. ISA savings and investments are free from Income Tax, Capital Gains Tax (CGT), and Dividend Tax, up to the annual subscription limit of £20,000 for the 2026/27 tax year.
Although there is a £12,000 cap on Cash ISAs starting in April 2027 for under-65s, ISAs could still be a great way to reduce tax on your savings and investments.
Likewise, taking advantage of salary sacrifice, if your employer offers it, may divert more wealth to your pension while reducing your overall Income Tax liability and National Insurance (NI) contributions.
Note that, from April 2029, the amount of salary sacrifice pension contributions exempt from NI will be capped at £2,000 a year for each employee.
- Consider investing alongside cash savings
While you might be tempted to grow wealth in cash savings due to its added security, investing usually offers more opportunity for growth over the long term. For example, Unbiased found that, over 10 years, the average return on Stocks and Shares ISAs was 9.64% compared to 1.21% for lower-risk Cash ISAs.
Consider investing extra income into your Stocks and Shares ISA or pension alongside a cash savings plan.
Investing normally carries some capital risk. Strategies like diversification can help you spread this risk, and maintaining a long-term investment outlook could encourage more stable growth. However, these methods do not guarantee positive returns.
Get in touch
Speak to one of our team today to learn how we can help you boost your retirement wealth.
Please get in touch or email us at advice@mlifa.co.uk for more information.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Workplace pensions are regulated by The Pensions Regulator.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation, which are subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.