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A new report by the Institute for Fiscal Studies (IFS) claims that young people are on course to be less wealthy than their parents throughout their lives, largely due to increasing pension values for older generations.
The IFS report examined the evolution in household wealth between 2006 to 2008 and 2010 to 2012 and discovered that young people today are more ‘financially insecure’ than previous generations.
It found that UK households actually grew wealthier between 2006 and 2012 despite the financial crisis, but said that the reason for this was the increase in pension values over the period.
Households aged between 45 and 54 saw the biggest increases in their pension wealth in the period, rising on average by £38,000. However, the slow rate of growth in overall wealth suggested that young people would lag behind earlier generations at every stage.
Dave Innes, a research economist at the IFS and an author of the report, said: ‘Despite the financial crisis, household wealth on average increased in real terms over the late 2000s, driven by increases in private pension entitlements.’
But he added: ‘Even with these increases in average wealth, working-age households are at risk of being less wealthy at each age than those born a decade earlier.’
The study also found that many people still have inadequate savings for retirement. 30% of individuals reported saving for an unexpected expense, 23% reported saving for holidays or leisure and 15% for planned expenses, but only 10% of respondents claimed to be saving to provide a retirement income.
In addition, one third of households aged 25 to 34 expected the state pension to be their largest source of income after retirement, yet 24% did not expect to receive any income from the state pension at all.
Meanwhile, some 44% of all respondents did not anticipate receiving any income from a private pension at the end of their working lives.
Rowena Crawford, a senior research economist at the IFS, said: ‘It is striking how many individuals do not expect private pensions to have a role in financing their retirement, let alone be their main source of income. It will be interesting to see how these attitudes change as auto-enrolment into workplace pensions is rolled out.’