In the third of PA's new Millennial Money video series, where experts dissect the money issues that matter most to millennials and those who advise them, Steve Webb suggests it will be Generation X who face the biggest challenges in retirement.
The former pensions minister turned Royal London director of policy suggests it will be the generation born between baby-boomers and millennials who will struggle the most in retirement.
Webb references a report by the Resolution Foundation that finds Generation X - who were born between the early 60s through to the late 70s - missed out on defined benefit (DB) pensions, and never properly got started on defined contribution (DC) schemes, benefitting only from small contributions when auto-enrolment (AE) kicked off.
That is not to say millennials are in for an easy ride, however, with Webb adding they face some challenges - most notably in housing and saving for retirement.
"Fundamentally, some of this generation will end up as homeowners - but much later" he suggests. "They will spend much longer as renters even if they do eventually become homeowners.
"They are in DC pensions and much less money is going in so, in a sense, not only is the structure of the benefit they are going to get very different, the amount going in is much smaller. So, all other things being equal, they are going to get smaller pensions and work longer for them."
Fellow panellist AJ Bell senior analyst Tom Selby explains the additional risk that comes from DC pensions, saying: "They bring more opportunities, and the pension flexibilities give people new ways to spend their retirement income, but it also introduces a lot more risk and a lot more responsibility - and that's where government policy needs to move towards that engagement agenda."
‘If I was pensions minister for a bit longer…'
In discussion with Professional Adviser reporter Hannah Godfrey, Webb reveals if he had been in government longer, he would have focused on stepping up contributions into pensions, suggesting making it law for people to increase contributions when they receive a pay rise.
"All the focus while I was the minister was getting AE started, starting with the big firms, working to the smallest, planning the step up to 8% contributions next year," he explains. "What there isn't really is a plan beyond that but that is absolutely critical.
"I would make this step-up when you get a pay rise the default. I would say 'you have to do this by law', and let people opt out if they want to. But if that was the norm, we'd get people to realistic levels pretty quickly."
To hear more of the duo's thoughts on millennials and retirement, please click the video at the top of the page
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