Almost one in three Generation Xers — individuals aged between 41 and 56 — have inadequate pension savings and face a minimum-at-best standard of living in retirement, according to research by the International Longevity Centre and Standard Life.
The ILC’s ‘Slipping between the cracks’ report found that 60 per cent of Gen Xers in a defined contribution scheme are not contributing enough for financial security or flexibility later in life, while 59 per cent of those with insufficient savings lack any other kind of income, for example property.
More than two-fifths (44 per cent) have gaps of at least 10 years in their contributions, a figure that rises to 48 per cent for women.
Calculating ‘excess savings’ is simple: they are the cumulative amount by which personal saving during the pandemic exceeded a counterfactual path without COVID-19. As shown in blue in Figure 1, personal saving has been elevated since last March. The red line represents one plausible counterfactual scenario, in which the saving rate out of disposable income is constant at its pre-pandemic level (7.3%), while disposable personal income grows at its average rate over the previous twenty years (3.5%). ‘Excess savings’ are the area between the two lines. According to this calculation, they amount to $1.6 trillion. Different plausible assumptions on the counterfactual evolution of personal saving in the absence of the pandemic lead to relatively small differences in this headline number.
Author(s): Florin Bilbiie, Gauti Eggertsson, Giorgio Primiceri