Not all baby boomers are headed for a comfortable retirement, with one in six people (16%) approaching their late 60s without a private pension and low household savings.
Researchers from the UCL Centre for Longitudinal Studies found divisions in the finances of baby boomers born in 1958, who are members of the National Child Development Study. Their report, published by Department for Work and Pensions, shows that one in four people in this generation had retired by their time of interview between ages 62-65, with this group tending to be much better off than those still working.
They also estimate that around two-fifths of people approaching their late 60s have not saved enough in their pensions or savings to replace their income sufficiently to reach the government’s target replacement rate. As a result, they may need to rely on other financial resources, such as a partner’s income, housing wealth or future inheritance.
Our findings highlight the disparities in people’s finances, which could see inequalities widening in later working life and retirement.
Co-author, Dr Vanessa Moulton (UCL Centre for Longitudinal Studies) said: “Our report reveals differences in people’s retirement planning and shows that, despite many baby boomers having substantial pension wealth and having greater access to favourable pensions than younger generations, a sizable proportion are at risk of being unprepared.
“Our findings highlight the disparities in people’s finances, which could see inequalities widening in later working life and retirement. Equally, they underscore the importance for many of having the state pension as a financial lifeline.”
What the researchers looked at
The researchers analysed data collected from almost 8,000 people from England, Scotland and Wales when they were 62-65 years old. The researchers considered participants’ current employment, their pensions and finances in their early 60s, and their retirement plans and expectations for the future.
What the study found
By their early 60s, a quarter (24%) of people in the study had retired and just over half of people had household savings of more than £25,000. Those who had retired early were around twice as likely as their peers who carried on working to own their home outright (92% v 56%) and to have savings of more than £100,000 (41% v 22%). They were also twice as likely to have a defined benefit (DB) or ‘final salary’ style pension, which pays out a secure income for life (55% v 23%).
However, more than half of people (53%) were still in paid work in their early 60s. A fifth were out of paid work due to ill health or caring responsibilities, and 2% were unemployed. Eight in 10 (78%) reported having a private pension. Nearly one in 10 (8%) had no private pension or savings while one in six (16%) had no private pension and household savings of less than £25,000.
Retirement living standards
Half (49%) of people’s total expected pension income did not reach the Pensions Commission’s Target Replacement Rate (TRR) which would allow an individual to reach an adequate income in retirement from their pension alone. This reduced slightly to just over four in 10 (43%) overall when their financial wealth was included. These individuals would need to rely on other resources, such as inheritance (as one in four report they are very likely to receive one), a partner’s income and/or housing wealth, to meet an adequate income in retirement.
Differences by employment status and gender
People who had spent the majority of their working life self-employed were three times less likely than salaried workers to have a private pension (10% v 29%) and were more likely to think they would continue working into their late 60s (14% v 40%). However, they were nearly twice as likely to own two or more properties (17% v 30%) and to have housing wealth of more than £600,000 (15% v 30%).
Women were only slightly less likely than men to have a private pension (75% v 82%), the average value of their private pensions was considerably lower. Men with DB pensions were expected to receive twice as much per year as their female counterparts on average (£13,900 to £7,500). Among those with a defined contribution (DC) pension, men reported having three times the overall funds as women, on average (£90,000 to £28,500).
Our investigation highlights substantial gender gaps in people’s pension resources. Women’s private pensions are of much lower value than men’s, and they are more likely to be reliant on a partner’s income or state support in retirement.
Bozena Wielgoszewska, Senior Research FellowCo-author, Dr Bozena Wielgoszewska (UCL Centre for Longitudinal Studies) said: “Our investigation highlights substantial gender gaps in people’s pension resources. Women’s private pensions are of much lower value than men’s, and they are more likely to be reliant on a partner’s income or state support in retirement.
“Women tend to spend more time out of paid work caring for family and they typically earn less than their male counterparts, even if they work in similar jobs. As a result and depending on how wealth and income is shared with their partners, they may be financially vulnerable in retirement.”
Co-author, Dr Sam Parsons added: “With Britain’s ageing population increasing pressure on state support systems, improving public understanding of the importance of private pension savings is essential. Future policies should ensure that the value of an individual’s pension pot is easily trackable and that an estimation of what is needed for a comfortable retirement is straightforward to understand throughout people’s working lives.”
Further information
‘Pensions and economic status among the 1958 birth cohort prior to reaching state pension age (SPa)’ by Vanessa Moulton, Sam Parsons, Bozena Wielgoszewska, and George Ploubidis is available on the Department for Work and Pensions website.
