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The one thing that could save Millennials from pension blackhole

People aged 32-50 are part of the "lost generation" - woefully ill-prepared for later life, but unable to do much about it thanks to the cost of living crisis. 

March 06 2024, 13.24pm

Are you part of the “lost generation”? I am, and if you’re aged somewhere between 32 and 50 then you probably are too. The man who coined the term - pensions expert James Corcoran, a financial advisor at Lumin Wealth - is in his early forties himself, so that puts him squarely in the bracket. 

We’re “lost”, he says, because unlike our Baby Boomer parents who are now drawing down gilded final salary pensions, and unlike our younger colleagues who by law were enrolled in a workplace pension scheme from their first days of employment, we fell through the savings gap. Now, we’re reaching an anxious stage of early middle age knowing we’re deeply under-prepared for the costs of later life, but in a cost of living crisis we’re struggling to do anything about it. We need a radical solution to our financial problems - or, perhaps, a solution that once seemed incredibly radical but is now anything but: the introduction of a basic income.

Research published earlier this month suggested that Millennials are on course to become the “richest generation in history” over the course of the next two decades as many will inherit the assets of their Baby Boomer parents - a demographic that currently holds over three quarters of the nation’s housing wealth . Of course, many will not: this wealth will not transfer to three quarter of the population, with white and already wealthy younger people more likely to take hold of this income.

But even for those who are likely to inherit in the future, for now the situation looks bleak. Those entering mid-life now are pummelled by extremely high housing costs, whether that’s spiralling private rents or exorbitant mortgage repayments due to rapid inflation. Childcare costs are also hitting our wallets hard, despite botched government attempts to resolve that issue. Meanwhile, the cost of living crisis and the lingering aftermath of the pandemic have hit us in the prime years of our working life, meaning making any savings - let alone long-term ones for retirement - is difficult. And while other generations could downsize their home to release money, with 35- and 40-year terms becoming more popular many of us will still be paying off our mortgages in early retirement.

At this point in life, previous generations were able to squirrel a lot away into pension pots, during their peak earning years, with their employers stumping up more on their behalf too. Less than 10% of private sector employees born in the 1980s were members of a defined benefit pension scheme by their early 30s, compared to 40% by the same age of those born in the 1960s. Younger workers are now likely to be on a “defined contribution” scheme instead, which attracts an average contribution rate of just 2.5% compared to 16.2% for the older schemes.

"With a generation heading into the second half of their lives woefully underprepared for its twilight - the state will have to become less rigid in how it supports its people."

Having already missed out on saving in our twenties - due to higher housing costs, the cost of studying and the effects of the 2008 financial crisis on early careers - we’re facing incredibly difficult decisions over balancing the demands of today with the needs of tomorrow. Single parents and self-employed people - who now make up a much higher proportion of society than even 20 years ago - are also highly likely to be under-saving towards their retirement. According to the Institute for Fiscal Studies, the proportion of the self-employed people saving in a private pension has declined dramatically over the last two decades, from 48% in 1998 to just 16% by 2018. Meanwhile, at the current rate of savings, single mothers would need to work an additional 28 years longer than men to be able to retire at all.

Thanks to austerity, the consistent rise in longevity we’ve seen over the last half century has stalled in the UK. Nevertheless, with public finances strained, the state pension age keeps moving back. The triple lock on that pension, which boosted and then held it in line with working incomes, will not last until our own retirement even if it persists beyond the next general election. In fact, when I spoke to other people paralysed by mid-life pension anxiety, none of them expected to receive any form of state pension in their later years. Alex Micu, 42 from London, told me he’d abandoned all hope of retirement. “I find it a very foreign, antiquated concept. I do not expect to be able to retire in the UK on a pension,” he said.

There’s only one way this is heading: many of us will be unable to work any longer, due to ill health, exhaustion and ageism in the workplace, long before we reach a point where we can afford to step back. 

I think the doom-mongers who say there will be no state pension at all for those of us in our forties or younger are wrong, but it’s obvious that the state will have to change to adapt to the needs of a new generation of retirees. We accept that we will have to work longer and more flexibly, but the current welfare and pensions system is broken too, and - with a generation heading into the second half of their lives woefully underprepared for its twilight - the state will have to become less rigid in how it supports its people.

Universal basic income is often proposed by those on the hard right and hard left, seen as a solution to either the overreach of the state or the failure of its responsibility. I think there’s a centrist case for a form of basic income, and the pensions crisis we’re heading into proves it. It’s not a luxury policy, but a necessity in times of precarity. 

The idea of a basic income - which perhaps waxes and wanes over a lifetime to match its changing demands, from caring responsibilities to old age - is no longer a radical idea, but a natural evolution of a benefits system that has been broken by years of being warped to fit a changing world but never fully redrawn. 

This week, the chancellor cut national insurance in an attempt to ease household budgets. This “insurance” scheme was once seen as a retirement savings fund in its own right. Now, we have a generation of people who have paid into it for decades who will retire on very little or never retire at all. What becomes of the premium they have paid? If membership of society confers both rights and responsibilities, what happens to our right to a return on investment in that group? These are all compelling reasons for introducing a form of basic income - whether that’s universal, partial (as in the state of Alaska) or another form of direct wealth transfer.

Governments over the last three decades have talked consistently of “welfare reform” but have failed to ask the fundamental philosophical questions about what “welfare” really means - that is the health, happiness and fortune of a group of people - that come along with it. With the “lost generation” reaching the second half of their lives, those questions are now long overdue.


Hannah Fearn is a freelance journalist specialising in social affairs with a special interest in inequality, poverty, housing, education and life chances.

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