Generation faces retirement challenges

The Pensions Policy Institute (PPI) has published a report on retirement planning for ‘Generation Z’, highlighting challenges and calling for a “new approach”.

The Concerns of Gen Z report, commissioned by the Institute and Faculty of Actuaries (IFoA), has detailed challenges the cohort born between 1997 and 2012 face in terms of retirement.

The report, which outlines economic and employment challenges, reliance on defined contribution (DC) schemes, short term priorities and financial pressures such as rising housing costs and student loan debt repayments, said such challenges are delaying the cohort’s need to address their pension provision.

It also noted this could have “long-term implications for economic stability, social equity and the sustainability of pension systems”, adding the government should not delay phase two of its report any longer in order to develop a “modern pensions system”.

It added policies should address “housing affordability and student debt” to allow long-term focus on finances, as well as supporting those in gig-based roles and self-employment with pension schemes.

It also looked at the cohort’s attitudes to pensions, with half (46%) saying they think the state pension will not exist by the time they reach retirement, with a similar percentage (47%) saying they will move to part-time work instead of retiring fully.

PPI policy researcher and report author Shantel Okello said: “Gen Z is navigating a vastly different financial landscape from previous generations, with high housing costs, student debt, and insecure work limiting their ability to save for retirement. The rising cost of homeownership means that fewer young people are accumulating housing wealth, increasing the likelihood of renting in later life. At the same time, the increase in reliance on DC pensions has transferred much of the risk onto individuals, leaving many Gen Z savers exposed to the potential for inadequate retirement incomes.

“If policymakers and industry leaders want to improve outcomes for Gen Z, urgent action is needed to address barriers to pension saving. Expanding access for gig workers and the self-employed, reassessing contribution adequacy, and modernising communication strategies could help build a system that better reflects modern working lives. Without meaningful reform, there is a risk that a growing proportion of young people will reach retirement without the savings necessary to maintain an adequate standard of living.”

IFoA pensions gap working party member Alexandra Miles said the cohort is set to have “longer working lives and a longer period of retirement”, with current financial pressures delaying the focus on retirement saving, adding traditional retirement models “are becoming increasingly unsustainable” especially for one of the first generation to not benefit from defined benefit pensions.

“The current rigid life-stage model will need to shift to a far more fluid, adaptable approach where retirement is redefined as an evolving phase rather than a fixed endpoint.

“Industry, regulators and policymakers all need to play our part in addressing this shift, ensuring financial security, purpose, and well-being for all throughout our own unique and un-sequential lives.”

IFoA president Kartina Tahir Thomson added it is “understandable” the cohort cannot prioritise their retirement savings, adding a “changing job landscape” is also a factor for some not benefitting from automatic enrolment.

“We need to think about how we can better support individuals, including those in Gen Z, to make financial choices that will support them later in life. This will require a coordinated approach with industry, governments and policymakers working together to come up with tangible solutions, that tackle issues now, in order to safeguard the future.

“Actuaries’ expertise in pensions and life expectancy means that they can play a crucial role in finding solutions to these challenging issues.”