Struggling to save for retirement

All political parties are courting the votes of older voters. Perhaps not surprisingly given the bulge in the population as the baby boomers reach their 70s, and the historically higher turnout among those over 50, who are a third more likely to vote.

And yet much of the undercurrent of political and public debate is that the baby boomers are doing fine – rising house prices mean those who are home owners have increased housing assets, they are set to enjoy final salary pensions schemes and the state pension has risen above inflation thanks to the triple lock. But there is a hidden group of older people who are facing significant challenges to their future. I’m not talking about the very worst off i.e. those who are reliant on benefits, rather the 1.8 million working households aged between 50 and State Pension age who – despite a significant increase in employment over the last 20 years – are earning relatively little. Four out of five of these workers earn less than the typical salary of £21,000.

Our report with the Resolution Foundation finds they are experiencing similar hardships to younger working families – more often the focus of political attention. They have been impacted by the financial crisis, suffering from a pay squeeze and stagnated earnings despite increased levels of employment. While this impacts on their living standards today, it is also likely to have a critical impact on their later life. These households have very little ‘spare’ income to save – and, crucially, at a time in their lives when they are running out of time to boost their retirement savings.

Most defined benefit pensions have already closed their doors and this group will be reliant on the state pension and private savings if they are to have decent living standards in retirement. It is as much for future pensioners as today’s that maintaining the value of the state pension relative to earnings is critical. There are likely to be more people, not less, reliant on the state pension for a significant part of their income in future.

And their cost of living is rising. While the majority are home owners, many are still paying off mortgages. An increasing proportion are renting privately – a trend likely to continue. One of the most significant challenges is the rise in single households among this group, in part due to rising divorce and separation rates, which means the higher costs of running a household fall to one person. Others have dependent children still living with them, health issues, or are caring for loved ones, which in turn is squeezing them further – if not financially then in terms of space and time.

So how does the next government need to address the needs of these older ‘ordinary working families’? Better quality work and better paid work will benefit this group as much as younger working families. While auto enrolment will help younger people save for later life, it is too late to make a big difference for these older working age households, who need help to boost their savings for retirement and to get impartial advice about later life planning. Above all, this group will need to work for longer, at least to State Pension age and probably beyond. This will require government and employers to work together to ensure barriers to employment for older workers are addressed including health, caring responsibilities as well as age discrimination in the workplace.