Expert View: Tim Middleton of PMI on the initiatives that will boost retirement prospects

The first members of Generation X will reach the age of 60 this year and will be the first cohort to feature significant numbers of individuals whose workplace pension accrual consists solely of defined contribution (DC) benefits.

Unfortunately, many of these people probably will not have accrued sufficient pension savings to secure an adequate retirement income.

While this is cause for concern, it is important to note that steps have been taken to improve the retirement prospects of future generations.

The introduction of automatic enrolment (AE) in 2012 has ensured that, by default, all employees are placed in a workplace pension scheme. In the private sector, this will almost inevitably involve a DC arrangement.

Currently, at least 8% of ‘qualifying earnings’ (gross earnings between £6,240 and £50,270 pa) must be paid into a scheme for those aged between 22 and the State Pension Age.

Recent reforms are set to remove the lower threshold and reduce the minimum age to 18. Many within the industry also expect the minimum rate of contribution to be increased – possibly to 12% - in the near future. It is important to note that many employers contribute over the statutory minimum.

Recent government initiatives have focused on the assets selected for DC pension investments. By investing in ‘patient capital’ (long-term investments such as infrastructure projects), savers can expect better long-term returns.

This would boost the average pension pot by £11,000, the government says. The introduction of pensions dashboards from 2026 will allow savers to keep track of accrued pensions savings easily. With Generation Z expected to change jobs every two years, this will prove significant.

While DC pension schemes are often seen as a less secure form of saving than the defined benefit arrangements that preceded them, there are continued efforts by the government and employers to improve longer-term retirement prospects.

This will do much to secure the finances of those retiring during the second half of the century.