Contrary to multiple reports painting a bleak retirement picture for millennials, British think tank Resolution Foundation has released a report that says those entering the workforce today will have a similar retirement to current retirees.
The report found that at retirement age, individual pension incomes for millennial men, who were born in the 1980s and retiring in the 2050s, will on average be at similar levels to incomes for younger baby boomer men born between 1955 and 1965, who will begin retiring in the 2020s, when expressed in constant earnings terms.
“Overall, future pensioners look set to experience similar levels of earnings replacement adequacy to recent retirees,” said the report. “Across earnings distributions, projected replacement rates for the younger baby boomers through to the millennials are certainly not the disaster that public perceptions would suggest.”
Earlier this year, the International Monetary Fund (IMF) urged millennials to prepare for “pension shock.” The IMF said young workers in advanced economies won’t be able to rely on pension funds like their parents or grandparents have, and will have to work longer and save more than previous generations. The IMF said the so-called millennial generation needs to take action now to make sure they will have enough money to make it through a retirement that could last as long as 30 years.
And a report released this summer from market research company YouGov said that only about half as many millennials in the UK have a pension as do Generation Xers (born between 1966 and 1980) and baby boomers. It also said that 44% of 18- to 34-year-olds say they have no pension provision, compared to 22% of 35- to 54-year-olds, and 20% of those older than 55.
While the Resolution Foundation report paints a more optimistic picture for millennials than other reports, it doesn’t gloss over the challenges facing future retirees. It said that earnings replacement rates—the measure that the Pensions Commission established to benchmark retirement income adequacy—have fallen short of the target for all but the lowest earners.
According to the report, approximately 77% of adults retiring during this century have had replacement rates below the adequacy benchmark for their level of earnings. It said projected replacement rates for the younger baby boomers through to the millennials remain “far from the adequacy benchmarks that the Pensions Commission set in its sights.”
The report also found that constant-earnings terms pension incomes dip by around £25 ($33.40) a week for men in the younger half of Generation Xers who will be retiring in the mid-2040s. It also said that following a modest improvement in individual pension incomes for baby boomers retiring in the 2020s, incomes among women are projected to remain flat for Generation X and millennials.
“Consistent with our findings for current pensioners,” said the report, “we expect around one-fifth of new retirees to continue to enter retirement with an income below the level of the individual pensioner minimum income standard.”
The minimum income standard defines how much income people need to reach a minimum socially acceptable standard of living in the UK.
“Over the full duration of retirement, we expect a greater share of pensioners to fall below the individual pensioner minimum income standard,” said the report. “That’s because pension income—a mix of state and private pensions—increases by less than earnings each year.”
Tags: International Monetary Fund, Millennials, Pension, Report