The UK generation ‘sleepwalking’ into a pension nightmare
Key Points
- Generation X has bet big on buy-to-let property to fund their retirement, and the investment is not paying off.
- Gen Xers are twice as likely to own buy-to-lets than Baby Boomers, and are less likely to have ISAs or other investments.
- With subdued growth in the property market, asset management firm Rathbones has warned that many Gen Xers are 'sleepwalking' into a a retirement shortfall.
Generation X workers are most at risk of inadequate retirements, despite the fact they own more buy-to-let property than other generations in the UK.
The Pension Commission’s recently published interim report revealed that while Generation X (those born between 1965 and 1980 owned more property than Baby Boomers or Gen Z, they are at risk of “sleepwalking” into a retirement far below their expectations.
According to the interim report, 15% of Generation X are projected to miss the Pensions UK minimum standard, compared to 10% of Generation Z (1997-2012).
This is partly due to many of this cohort having been employed during the shift from defined benefit to defined contribution pensions, when fewer employers were offering workplace pensions.
Many Gen X workers were entering the workforce as defined benefit pensions were disappearing, and before the widespread implementation of automatic enrolment.
Automatic enrolment has led to the greatly increased uptake of private pension schemes, but it has mostly benefited millennials and younger generations who have had the most opportunity to benefit from the system.
Gen Xers bet big on property
Where Baby Boomers benefited from generous pension schemes, research from wealth management firm Rathbones found that Gen Xers have bet big on property over savings.
While 9% of Baby Boomers own a buy-to-let property, the number rises to 17% among Gen Xers, who are also significantly less likely to hold tax-efficient investments like ISAs or other liquid investments.
Betting on property may have seemed a viable alternative to tax-efficient investments or pensions when prices were soaring over the past decades, but conditions are now changing.
Property price growth has slowed significantly in the UK, and in some areas of London and other places where affordability is stretched, prices have even begun to decline.
At the same time, stock markets have been delivering record returns to pension schemes and tax-efficient investments, leaving those who have bet on a buy-to-let property as their pension alternative in the dust.
This situation creates a nightmare scenario for Gen X, who have been the most likely to invest in buy-to-let property over ISAs or their pensions, and who now face the highest risk of financial insecurity in their retirement as a result.
“Many Gen Xers are sleepwalking into retirement with far less financial security than their parents,” said Rathbones Financial Planning Division Lead Rebecca Williams.
“They came of age as defined benefit pensions were disappearing and have since faced years of stagnant wage growth and repeated financial shocks, making it harder to build robust, long‑term savings.”
The firm’s research found that many have assumed property to be a ‘safe bet’, a rule that no longer holds true in many parts of the country.
For the Gen Xers who have chosen a buy-to-let portfolio over stocks or a private pension, that bet may not be paying off in the way they expect, and they could face a retirement that is far less financially secure than they originally envisioned.
