The FCA has published a paper seeking views from firms, consumers and other interested parties on intergenerational fairness.
The report seeks to identify the differences in the financial straits between baby boomers, generation X and millennials, and includes a focus on the housing market and property wealth.
Money Marketing has looked at the reactions from experts to the paper. Broadly they say the FCA’s research note focuses on the right areas but ask if concrete policies will result from it.
There are no easy solutions to complex problems
Millennials face severe challenges in building a decent retirement pot, particularly when compared to baby boomers who were more likely to enjoy generous defined benefit provision.
Housing wealth too is highly concentrated within this older generation, who were able to buy relatively cheaply and benefit from rapid price rises through the latter part of the 20th Century.
On the flip-side younger savers are being boosted by automatic enrolment, with matched contributions and value-for-money pensions now a legal right for most workers. Older workers, on the other hand, were entirely at the whim of their employer and many had no opportunity to build up private pension wealth at all.
There is an argument to say those caught in the middle – so-called generation X – face the biggest retirement savings challenge. Many will have just missed the boat on DB and will only benefit from auto-enrolment in their 40s, meaning they will face an uphill task in building a decent pension pot.
Although the challenges that exist for these different cohorts of people are fairly clear, there are no easy solutions. The shift from paternalism to individualism has happened as a result of massive, unstoppable demographic trends – no single product or ‘innovation’ can change this fact.
Tom Selby, senior analyst AJ Bell
Millennials are up against it regarding retirement
According to the paper, half of all 20 to 29-year-old have no retirement resources, and of those aged 30 to 39, half have less than £30,000 saved. Now this is in part down to the fact that its analysis is of data from 2014 to 2016 so doesn’t capture the role of auto-enrolment, but worryingly even once that’s taken into account there works out to be a terrifying 60 per cent shortfall in the amount of money millennials can expect when they enter retirement compared to those today who are just about to start enjoying their golden years.
According to the paper the average individual aged 60-65, based on what they have accumulated to date, might expect to achieve a gross annual retirement income of around £14,200 to £17,000.
This kind of data should be a wakeup call to people that while changes such as the auto-enrolment minimum contributions for pensions going from 2 per cent to 3 per cent for employees are good they are still far from enough for later life.
Government and the pensions industry need to boost engagement from a young age and hammer home that foregoing yet more of their salary is not only worth it, it is necessary.
Ian Browne, pensions expert at Quilter
Government policy must be nuanced due to generational differences
There is a growing awareness of the varying wealth profiles and financial challenges faced by different generations be they baby boomers, generation X or millennials. Both socio-economic and demographic trends have led to significant change over the last 10 or 20 years, meaning individuals across the age bands can have very different attitudes towards, and needs from, financial services.
It’s essential that government policies fully reflect these age differences and that all policy areas not only meet the needs of each generation but deliver intergenerational fairness. This is particularly important in areas such as pensions, social care and housing, where the financial services industry has a key role to play in supporting individuals with their financial planning. As our population ages, attitudes towards retirement are becoming more flexible, while the financial challenges of funding social care will continue to grow, making this a priority.
The FCA’s discussion paper follows hot on the heels of the House of Lords report , Tackling intergenerational fairness, and offers a timely opportunity to step back and review how the financial services industry is currently helping people manage their finances across their own lifespans. Looking forward, we should be looking at what more can be done to reflect changing wealth patterns and financial challenges. Within this, an area of growing interest is how financial advisers can help people share family wealth between generations.
Steven Cameron, pensions director Aegon