By Lucy Parsons, Senior Economics Researcher at Reform
Last Wednesday I appeared on Newsnight alongside Pensions Minister Angela Eagle and UBS Chief Economist George Magnus to put forward the attitude of my generation - the under 30s - to retirement. The feature was sparked by IBM’s announcement that they would be closing final salary pension schemes to new and existing members. IBM was the latest in a wave of companies realising that defined benefit pension schemes are no longer affordable - a trend that will continue. I spoke about the myths around young people and savings and offered new ideas for how younger generations will support themselves in later life.
Reform’s Money's too tight to mention report with the CII last year showed that attitudes towards life stages are changing dramatically. The idea of a job for life is one of the past, as young people in particular are becoming more switched on to the job opportunities afforded to them by a growing global labour market. A young person today is likely to stay in a job for only 16 months, compared to three years for Generation X and five years for the Baby Boomers. A university graduate today is likely to change jobs 11 times throughout their working life.
The very concept of retirement is outdated. Young people do not view their adult lives as being divided into two distinct and separate phases – work and retirement – which occur in that order. They have a much more flexible attitude to work and non-work time. For example, going in and out of work for short 2-3 month sabbaticals or even year-long breaks to travel, learn a new skill or do voluntary work every few years. Several of my friends have done this already and they have only been working for five or six years.
Non-work time is not something young people necessarily perceive as needing to be saved up for the latter part of life. It can be taken in shorter periods, interspersed with work, and does not have to be a time of inactivity. Even among current soon-to-be retirees, the trend is for continued activity post-retirement. Reform held an event with Standard Life earlier this year – their research has found that one in three 45 to 65 year olds wants to keep working “on their own terms” after the official retirement age and the same proportion want to learn a new skill. There is an incredible entrepreneurial spirit among this age group as they approach retirement, marking a shift from the stoic wartime generation, who saved and hoarded for their later years of rest.
The difference is that the baby boomers who are coming up to or already retiring are doing so fantastically comfortably. They have benefited from the economic boom years and are retiring with good pensions as well as free healthcare, free tv licenses and travel and winter fuel subsidies. None of this will be available when I come to retire. Future generations are going to have to pay more towards all sorts of things including healthcare and education and will not get the kind of pensions that have been enjoyed up to now. Young people need to save for all these things, not just for the ends of their lives.
So what can we do to prepare for these changes? An open debate about these issues would be a good start. Our research has found that many young people do have a sense of the changing welfare bargain, but politicians should be clear about the costs that younger generations will face. Tax policy currently incentivises the traditional pensions pot model with the benefits being greater the later the income is taken. Policy makers should consider enabling more flexible ways for people to save, such as lifetime savings pots which an individual can dip in and out of as and when it is needed.
In Back to black Reform also argued that the retirement age should be abolished – it forces people out of the workplace and is particularly harmful for those on lower incomes who need to supplement their state pension. As life expectancy continues increasing, the expectation that we can stop working entirely by 60 or 65 is a fiction (except perhaps for the wealthy). My generation are constantly told that we are not saving enough, but it is attitudes to work and retirement that need to change, not just to saving. My generation will need to be much more self-reliant economically and this will mean continuing working into our 70s.
Greater activity in these years should mean a more satisfying later life. It will mean higher levels of income and less reliance on government benefits and the vagaries of the private pension market. And it will give younger generations the freedom to support themselves rather than their grandparents.
