Open-access content Tuesday 28th November 2017
Young adults should receive similar retirement incomes to todays pensioners, despite widespread pessimism among millennials about their financial futures.
That is according to a new report from the Resolution Foundation, which says the higher than expected incomes will be largely thanks to a boom in private pension saving via auto-enrolment.
This comes after polling for the Intergenerational Commission found that a decent retirement ranks as the second biggest area of concern for young people, only behind housing.
"But these fears are overdone," Resolution Foundation senior economic analyst, David Finch, said. "Rising pensioner incomes have been one of the biggest living standards success stories this century."
The report shows that baby boomers currently receive approximately 54% of their pre-retirement earnings as a post-retirement income - known as a 'replacement rate'.
Millennials are expected to receive the same rate in 2060, but those from Generation X could miss out as many started work too early to benefit from auto-enrolment, and too late to enjoy generous DB pensions.
However, the research shows the relatively positive retirement outlook for young people is highly uncertain, with much depending on how auto-enrolment progresses in the coming years.
It warns that the temptation to opt-out will grow as the take home pay of a typical employee is set to rise by £1,700 by 2021 if they were to stop contributing pension saving.
The analysis finds that an increase in opt-out rates from their current 20% to 35% would reduce retirement replacement rates for one in five millennials and one-eighth of people in Generation X.
"This would provide a short-term income boost, but could prove disastrous for their incomes later in life," Finch continued.
"Policy makers and employers must ensure that auto-enrolment continues to be popular during a critical few years as it's rolled out and then ramped up across the country."
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