A new report has shown that the generation of people born in the 1960s and 1970s will be worse off than their parents when they retire; the first time this has happened since the Second World War.
The report, from the Institute for Fiscal Studies, compared the standard of retirement people born in the 60s and 70s are likely to have compared to that of older generations. For a country used to the standard of living rising with each generation, the findings are shocking:
- Children born in the 60s and 70s are less likely to own their home
- They will also have smaller state and private pensions
- Furthermore, they will have no more savings than previous generations
The report concluded that the only way these generations will enjoy a better standard of retirement, is if they were to inherit a large sum of money.
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. As a result, younger cohorts are likely to have to rely on inheritances to be better off in retirement than their predecessors. But inheritances are unequally distributed, with households that are already relatively wealthy far more likely to benefit.”
Long Term Care costs will reduce inheritance
The report found that 70% of those people born in the 1970s expect to receive an inheritance, compared to just 28% of people born in the 1940s. However, experts have warned that the costs of Long Term Care could eat into inheritances, despite the Government’s proposed cap on care fees.
The cap, which is due to be introduced from 2016, only applies to the cost of care and not the cost of accommodation in a care home; these fees will have to be paid by the individual and could significantly mount up if care is needed for a prolonged period.
You can learn more about the cap on Long Term Care fees and how it will affect you by clicking here.
Responding to the report experts have argued that people born in the 60s and 70s have had to cope a range of factors which have made them worse off, including:
- Changes to the State Pension
- A poorer pension system, with many Final Salary and Defined Benefit schemes closing
- Rapidly rising house prices
- The rising cost of education
- Lower interest rates
- The ongoing effect of the financial crisis
- Smaller wage rises over the past 10 years.
However, the IFS study actually found that people born in the 60’s and 70’s have actually earned more than previous generations, but have saved on average £60 per week less, preferring to fund their chosen lifestyle rather than saving for the future.