A common criticism of the UK’s millennial generation (defined as those born between 1981 and 2000) is that millennials are reckless with their personal finances.
According to Kate Hughes, money editor of the Independent newspaper, this perception is far from the truth.
In an article published in December 2017, Hughes cites research from the Resolution Foundation, a UK think tank that works to improve the living standards of those in Britain on low to middle incomes. Hughes argues that those currently in their twenties and early thirties are on course to enjoy retirement at a similar level of comfort to those already receiving or close to receiving their pensions. There are three often-cited reasons for pessimism about millennials’ financial futures, says Hughes: first, they have accrued large debts as students; second, they have reduced access to housing wealth by comparison with the older generations; and, third, the steady withdrawal over time of defined benefit (DB) pension schemes from UK workers has forced millennials in employment to save for retirement using defined contribution (DC) schemes. By comparison with DB schemes, DC schemes do not guarantee a particular level of post-retirement income. Hughes cites figures from the Resolution Foundation’s study to back up these claims. An “adequate” pension, she says, is one which provides a retirement income worth two thirds of someone’s pre-retirement earnings. But financial advisers suggest that achieving this kind of pension relies on monthly savings of at least 12 per cent of an employee’s salary from early in their working career. At first sight, this may seem too ambitious a savings goal for millennials, whose incomes have to cover housing and living costs.
However, says Hughes, the future for this cohort is brighter than it seems. A big rise in private pension saving via auto-enrolment, plus an increase in the number of women gaining entitlement to a higher state pension means that UK millennials are on course for a relatively healthy retirement in financial terms. If there is a cause for concern about pre-retirement savings rates, she says, it’s most acute for generation X (those born between 1966 and 1980).People of this age group are most at risk of a dip in retirement income levels, driven by the gap in private sector provision during their working lives, says Hughes.