Young adults think they’ll be shortchanged by state pension

• More than half (56%) of young adults in their 20s expect to have to wait until they’re over 70 years of age to claim the state pension, at least two years older than the expected state pension age
• Many are unsure if they can rely on the state pension, with around a third (30%) saying it won’t be there at all for them, and half (50%) saying it will be a smaller pay out than today
•  Nearly four in 10 (37%) think the criteria for eligibility will change by the time they retire

According to research carried out by mutual life and pensions provider, Royal London, young adults in their 20s say they won’t be able to rely on a state pension in future. More than half (56%) expect to have to wait until they’re over 70 years of age before they can claim it. With a projected state pension age for those in their 20s of 68, this would see them overshoot that by at least two years.

Retirement is clearly a long way off for younger workers, but many are sceptical to what extent, if at all, the state pension will be available to them as part of their overall retirement income. Around a third (30%) believe the state pension won’t exist by the time they retire, while half (50%) expect it to be less generous.

The amount of state pension someone receives is dictated by their national insurance record, but three quarters (74%) of those surveyed were unaware receiving the full state pension currently requires 35 years of national insurance contributions or credits.

Changing lifestyles

For today’s young adults life and long-term financial planning looks very different to the journey their parents took. Reaching key financial milestones, like buying a house will involve a much longer wait, as will retirement. The absence of generous employer sponsored final salary schemes which guaranteed an income in retirement also means that financial security in retirement is increasingly in their own hands.

For most people, the state pension will provide the foundation on which they build their retirement plans. However, those relying solely on the state pension need to be aware that at the current level of around £9,600 a year, it’s only going to stretch to essential needs. It also falls short of the ‘minimum level’ of retirement income for an individual, £10,900 a year, set out by the Pensions and Lifetime Savings Association’s retirement living standards, which classes an annual income of £20,800 a year necessary for a ‘moderate’ lifestyle.

This all points to a greater need for self-sufficiency if future retirees want to enjoy a comfortable standard of living and avoid a savings gap in retirement. The good news is the further away from retirement savers are, the more time they have to develop positive savings habits and for the money they, together with their employers, put away to build up and gain in value.

Shifting goalposts

Younger workers being sceptical about receiving the state pension may not be that surprising given the rapid rate of change in retirement age over the past 12 years. Improving life expectancy means those in their twenties are likely to live longer and therefore spend longer in retirement than previous generations. Living longer into old age is clearly a good thing, but it also creates the challenge of having sufficient savings to pay for extended lives. And in order to make sure the state pension is affordable and fair across the generations, the age at which you receive it has risen.

Increasing longevity does set expectations that the goalposts will continue to shift leaving young adults with the prospect of reduced retirement benefits from which to draw upon. Nearly four in 10 (37%) think the criteria for eligibility will change by the time they retire.

Clare Moffat, pensions expert at Royal London, said:

“For workers in their twenties, retirement is likely to be one of the last things on their mind with more pressing financial priorities like the cost-of-living crisis and paying bills, saving for a house or even a car, occupying their thoughts.

“But concerns about when and how much state pension will be available might lead to an expectation that they’ll need to self-fund a greater portion of their retirement. Future financial security is likely to mean working for longer than previous generations and also saving more.

“The good news is that there’s a long-time horizon in which to not only develop positive savings habits but benefit from growth through compound interest.”