In the traditional definitions of different generations, Gen X were born between 1965 and 1980 and, as a result, are currently aged between 44 and 60.
Some recent research carried out by Standard Life in the UK has revealed that Gen X are more worried about their financial position and living standards in retirement than both the preceding and subsequent generations.
The research found that:
- 54% of Gen X are worried their finances won’t cover their retirement, compared to 31% of Baby Boomers (aged 60 – 80).
- Nearly 45% of Gen X also expect their living standard to be worse in retirement – compared to 29% of Millennials (aged 28 – 43).
If you are part of Gen X, you are likely to either be approaching retirement or at least may be starting to think of a time when you will no longer be working.
If you share the concerns reflected in Standard Life’s research, it’s time to start taking proactive steps to get yourself on track.
Gen X may have been caught in an employer-pension gap
One potential contributory factor driving Gen X’s retirement worries is an accident of timing that may well have adversely affected your own retirement planning.
If you had started work in the late 80s, UK employer-sponsored defined benefit (DB) schemes were common. These provided employees with a guaranteed level of pension income, increasing every year, based on earnings during their period of employment and when they were set to retire – hence the alternative name of “final salary” schemes.
However, in the 1990s and early part of the new millennium, many of these schemes closed, which meant that if you were born between 1965 and 1980 you did not enjoy the benefits to the same extent as previous generations.
The next major change in employer pension schemes was not until 2012 with the introduction of auto-enrolment, and subsequently, compulsory employer pension contributions into defined contribution (DC) pots. The primary beneficiaries of this have clearly been Millennials, who have spent most of their working lives to date benefiting from compulsory employer payments into their pension fund.
The gap of up to a decade between the closure of many DB schemes and the establishment of auto-enrolment meant that many people, primarily from Gen X, may not have saved enough to enjoy a comfortable retirement.
6 simple ideas to help boost your retirement savings
There are some steps you can take to boost the value of your pension fund if you have concerns about affording a comfortable lifestyle in retirement.
These six steps can help you increase the value of your fund and provide you with some valuable peace of mind that you’ll have enough to retire on when you stop working.
1. Consider boosting your regular employee contributions
You can normally contribute up to the lower of £60,000 gross or 100% of your earnings into a pension each year without triggering a tax charge, so you may well have the scope to increase your contributions. This limit is known as the Annual Allowance.
If you are employed, you could boost your monthly contributions to your workplace pension, although there may be a limit on the percentage your salary you can contribute.
Another point to consider is that some employers will match employee contributions up to a certain amount, so you could ask your employer to match your increase. According to Standard Life, just a 2% increase in your employer’s contributions could result in an extra £115,000 in your fund at retirement.
2. Speak to your employer about salary sacrifice
Salary sacrifice is a government-backed arrangement whereby your employer reduces your salary in return for them making additional pension contributions on your behalf.
The effect of this is to reduce the amount of Income Tax and National Insurance Contributions (NICs) you pay, so as well as more money going into your pension fund, you may even see your take-home pay increase.
Salary sacrifice reduces the gross wage bill a business pays, so your employer may benefit from such an arrangement through lower company NICs.
3. Make additional one-off contributions
You can pay one-off lump sums into your workplace pension, such as part or all of a bonus payment. Alternatively, if you want to keep your extra contributions separate, you can set up another pension arrangement, into which you will be able to pay additional amounts, such as from a bonus or cash gift, into your retirement savings.
You should also consider setting up regular contributions into this arrangement through a direct debit from your bank account.
Make sure your total contributions for each financial year, including employer payments and tax relief, don’t surpass your Annual Allowance.
4. Claim higher- and additional-rate tax relief
Basic-rate (20%) tax relief will automatically be added to your personal contributions, including lump sums, as you make them.
However, if you are a higher- or additional-rate taxpayer, you will need to claim additional relief through your self-assessment tax return each year.
If you have not done this, you can also claim higher rates of relief from four previous tax years, which will provide you with a handy lump sum to boost your fund.
5. Check your State Pension entitlement
Your State Pension won’t be enough to live on comfortably, but you shouldn’t overlook it. These payments can provide a handy underpin of retirement income, which is payable for life, and will increase in line with the higher of wage growth, inflation, or 2.5% each year.
Because the amount you receive will be based on your NICs history, you should check the government website to find out how much State Pension you are on track to receive and whether or not you could boost the amount through voluntary NICs.
6. Review your investment strategy
How your pension contributions are invested is likely to have a significant bearing on the value of your fund.
The further you are away from retirement, the more investment risk you may want to consider taking on, with a view to potentially increasing the returns you get from your funds.
You should also be aware that your pension fund is likely to remain invested after you have retired, so you should consider your investment strategy on a long-term basis. You could also consider making investments outside of your pension to supplement your retirement income, such as paying into a Stocks and Shares ISA.
Before changing your investment choices, however, we would recommend that you get expert advice to ensure that your strategy is appropriate for you and designed to help you meet your financial targets.
Get in touch
If you would like to speak to a financial planning expert about your retirement savings, please get in touch with us.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
This article is for information only for UK residents, it does not take into account your personal objectives, financial situation, or needs. Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances.
All contents are based on our understanding of HMRC, which is subject to change.
