2 days Ago By Nicola Horlick
Generation Z – those born between 1996 and 2012 – are believed to be better with money than previous generations. Sixty-nine per cent set themselves a budget compared to 42 per cent of Baby Boomers and, on average, they save £100 more a month then their elders.Zoomers are also more likely to have a second job or work overtime to bring in extra cash and are more considerate shoppers, waiting for deals and paying for quality over quantity.
Moreover, they will be the first generation to get the full benefit of automatic enrolment into workplace pensions. if(window.adverts) { window.
adverts.addToArray({"pos": "inread-hb-ros-inews"}); }Does this mean that Gen Z are set to be the richest retirees yet? Let’s try to work it out using today’s stats.The accepted wisdom within the pension industry is that retirees need two-thirds of their final salary a year to retire.
Median pay in January 2025 was £29,604 and the state pension is set to rise to £11,973 in April, or 40 per cent of average earnings.So for someone to have that two-thirds threshold, their workplace pension needs to generate £7,763 per year. And for the same salary as when they were working, it would need to be £17,631 per annum (with the rest topped up by the state pension).
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addToArray({"pos": "mpu_tablet_l1"}); }Workplace pensions typically start at the age of 22 – over-16s can request enrolment – and the pension age is likely to rise from 66 to 68. That means that a Gen Z-er will likely pay in over 46 years. At 8 per cent of current average earnings, this results in a pension pot of £108,943.
The current life expectancy of a British man is 79 years and a woman 83 years, but it is rising, so those in Gen Z could live until age 100. For those who die at 80, that average pension pot would be sufficient to generate two-thirds of their final salary for their whole retirement. But for those who live until they are 100, there will be a shortfall.
While returns on pension pot investments, inflation, interest, wage growth and stagnation during their careers will affect these numbers, it is important to remember the financial circumstances that Gen Z are currently in and how that affects their retirement prospects. When compared with the Baby Boomers, Generation X and even Millennials, Gen Z are at a severe disadvantage economically.Many Baby Boomers and Generation X working in the private sector had company pension schemes, which gave them two-thirds of their final salaries at retirement.
In addition, they owned their own homes during a period of rapidly rising house prices, so have equity too. Millennials caught the tail-end of these positive drivers, but Gen Z have little chance of owning their own homes, so are going to be reliant on the state pension and workplace pensions for their retirement income.Automatic enrolment requires workers to pay at least 8 per cent of qualifying earnings into their pension, with 3 per cent coming from employers’ contributions.
When introduced, the initial contribution rates were acknowledged to be too low and were set in order not to place too heavy a burden on employers and employees, yet they have not risen since 2012.Employees can contribute more – and some businesses will match it – but according to the Institute of Fiscal Studies, less than half of private sector employees contribute more than the obligatory 5 per cent.if(window.
adverts) { window.adverts.addToArray({"pos": "mpu_mobile_l2"}); }if(window.
adverts) { window.adverts.addToArray({"pos": "mpu_tablet_l2"}); }It was the intention to increase these rates, but Torsten Bell, the Pensions Minister, recently confirmed that there were no plans to do so in the coming financial year.
It is thought that Chancellor Rachel Reeves did not feel that it would be appropriate to increase the contributions given the increase in employers’ national insurance in the Budget.The pensions industry has been lobbying for higher contributions, arguing that the current levels are not sufficient for future pensioners to live comfortably. The Institute for Fiscal Studies has estimated that 30 to 40 per cent of those saving through a workplace pension scheme will not be able to live comfortably in retirement.
One country that we should look to as a model for pensions is Australia. Workplace pensions have been mandatory since 1992. Employers are required to make contributions of 11.
5 per cent to any eligible employee pension scheme, increasing to 12 per cent in July this year. In addition, employees can make contributions up to a maximum of AU$30,000 a year with a capped tax rate of 15 per cent.#color-context-related-article-3612377 {--inews-color-primary: #F88379;--inews-color-secondary: #FEF2F1;--inews-color-tertiary: #F88379;} Read Next square PENSIONS AND RETIREMENT .
inews__post__label__money-clinic{background-color: #0a0a0a;color: #ffffff;}Money ClinicHow can I start planning for the 2027 inheritance tax raid on pensions?Read MoreAs at 31 December 2024, Australians had AU$4.2 trillion invested in their pension funds. That means that the Australians have some of the highest pension pots per capita of any country.
Australian super-funds are major investors in domestic infrastructure projects too – something the UK could benefit from.Pensions are a dry subject, but it is a subject vital to the economic future of our country. There is a clear incentive for government to increase the contributions to workplace pensions in order to safeguard the economic future of Gen Z as pensioners, and if it does, it could create a pool of money that would benefit the nation through investment, something that Reeves has said that she wants to achieve.
Gen Z is some way from retirement, but what is already clear is that however hard they try, and despite their more frugal spending habits and enthusiasm for saving, they will not be able to achieve financial security in old age on their own.Nicola Horlick is the chief executive of Money&Co.
