Individuals born in the 1960s or 1970s will be no better off in retirement than the previous generation, according to a report by the Institute for Fiscal Studies (IFS).
Since the Second World War, successive cohorts have experienced higher incomes and higher living standards than the previous generation, however, this has stalled over the last decade.
When comparing individuals born in the 1960s and 1970s to those born a decade earlier, at the same age, these cohorts: have no higher take-home income, have saved no more of their previous take-home income, probably have lower private pension wealth, and will tend to find that their state pensions replace a smaller proportion of previous earnings.
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The report found that those born in the 1960s and 1970s did have higher incomes during early adulthood than their predecessors. But this additional income at younger ages relative to earlier generations was all spent: they have not saved anymore past income than their predecessors had by the same stage in life.
The report also found:
- Under current policy plans, including the planned introduction of the single-tier pension, state pension entitlements for individuals born in the 1960s and 1970s will tend to replace a smaller proportion of previous earnings than is the case for those currently above, or around, the state pension age. This difference is particularly marked for higher earners.
- In the private sector, the rapid switch away from defined benefit pension plans to defined contribution pension schemes will have affected currently younger cohorts significantly more than older ones.
Andrew Hood, a research economist at IFS, and an author of the report, said: “Since the Second World War, successive cohorts have enjoyed higher incomes and living standards than their parents.
“Yet the incomes and wealth of those born in the 1960s and 1970s look no higher than the cohorts who came before them.”