23 Feb, 2016
A bleak future for younger pension savers
People aged 50 and under are fated to receive lower pensions than their older counterparts, research shows, amid fears that impending cuts to tax relief on pensions will worsen inequality between the generations.
According to calculations carried out for Telegraph Money by Hargreaves Lansdown, a fund shop, people in their 60s and 70s have received tax relief at a rate of around a quarter more than current younger savers. They also have pension pots that are around 14% larger than those that today’s 50-year-olds can expect, or 33% higher than today’s 40-year-olds can look forward to.
The findings come as an influential group of MPs investigates whether younger generations are being unfairly penalised by recent changes to pensions and benefits.
A major factor in older generations’ generous pension provision was final salary schemes, which provided them with guaranteed benefits. Membership of final salary schemes peaked in the 1960s at around 12 million individuals, compared with seven million today, a figure that is falling rapidly.
The working age population is also much larger today, so participation in final salary pensions as a proportion of the total workforce has plummeted, falling from 46% of the working age population to just 21%.
Pension wealth is heavily concentrated among those aged 55 and over. Of the £4.5 trillion held in private pensions, nearly half, £2.2 trillion, is accounted for by pensions in payment, in other words it is almost entirely held by those over the age of 55.
Those in the age group 55-64 hold average pension assets of £149,300; for those aged 65-74 the figure is £145,300, Hargreaves Lansdown said. By contrast, those aged 45-54 have average pension wealth of £81,800 and those aged 35-44 have an average of £37,100. Those aged 25-34 have average pension savings of just £14,200.
Clearly older age groups can be expected to have accumulated greater pensions wealth, with the zenith typically occurring around the age of 65. However, we can also look at how much today’s workers can be expected to accumulate, and whether they can reasonably aspire to hit the same levels as their forebears.
Someone aged 50 today who has an existing pension fund of £81,800, earns £30,000 and pays 8% of salary into their pension could expect to have a pot of £131,000 by 65, Hargreaves Lansdown calculated. Someone aged 40 today with a pot of £37,100 can look forward to a pension fund of £112,000 at 65.
So those aged 65 now have pension pots 14% higher than 50-year-olds can expect and 33% higher than those aged 40 can look forward to. Today’s 30-year-olds can expect a pension fund of around £116,000 at age 65.
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