How to help the ‘sandwich generation’ – the Just About Managing middle aged – to make the most of their pension pots.
Whether you call them the squeezed middle, the sandwich generation or the ‘just about managings (Jams), these are the demographic every politician is after but who advisers might be able to do more to help.
Like Essex Man and Worcester Woman, very few people probably share all the combined attributes of this supposedly archetypal individual.
But all these vaguely mythical creatures stem from very real economic and demographic changes.
While Essex Man was a symbol of the working-class people who did well under Margaret Thatcher’s reforms, the squeezed middle were born out of the financial crisis.
The Resolution Foundation has found real household disposable incomes are set to fall for an unprecedented 19 successive quarters between 2015 and 2020.
Disposable income per person is now set to be £540 lower by 2022 than expected, with the current fall in real incomes set to become the longest on record.
This comes as inflation is above of the Bank of England’s target, at around 3 per cent, while data from the central bank showed personal debt levels are now at £200bn – the highest level since the credit crunch – with credit cards accounting for £70bn of this.
“Lower pension funds could see them struggling to make ends meet in retirement or having to work much longer than they wanted to.”
– Jamie Clark, Royal London
The people stuck in the middle of this might be too young to have a defined benefit pension but too old to have been auto-enrolled for any significant period of time.
Which puts these people in a bit of a quandary.
Recent research by Royal London found an estimated 2.4m people aged between 35 and 44 consider themselves to be squeezed.
Jamie Clark, pensions expert at Royal London, said: “For this group, financial pressures have pushed pensions savings down the priority pecking order.
“But lower pension funds could see them struggling to make ends meet in retirement or having to work much longer than they wanted to.
“Yet, all is not lost; there are still potential windows of opportunity that can be taken advantage of.”
He said the key was to make the most of any additional funds which might be freed up – such as small sums from lapsed gym memberships or larger amounts when personal debt is paid off.
Fiona Tait, technical director at Intelligent Pensions, said the “unwelcome truth” was that building up enough savings to last through retirement was the work of a “lifetime of saving” which puts the squeezed middle in an uncomfortable position.
She said: “It is highly likely that most people will find if they give up their pension savings in favour of more immediate needs they have to work a lot longer than they would want to.
“Either that or they will face 20 to 30 years of very little to live on beyond the State Pension, currently worth £8,093.80 a year for those with a full contribution record.
“They may in fact find that even their current level of savings is not going to be enough to support them in old age and that contributions should, if anything be increased.
“Should this be the case, the earlier they can do so the less impact it will have later on in life.”
"The self-employed tend to shun pensions, with one possible reason being a fear of tying money up into a pension.”
– Nathan Long, Hargreaves Lansdown
Some of the people who will be most affected by this are the self-employed, who are getting little or no pension savings through their work.
There has been a sharp increase in the number of self-employed workers in recent years.
These people now account for around 15 per cent of Britain’s workforce compared with less than 12 per cent at the turn of the millennium.
Data from the Office for National Statistics show self-employment is most prevalent in the 45-54 age bracket, meaning these people may well not only be squeezed but are doing nothing about it.
Nathan Long, senior pensions analyst at Hargreaves Lansdown, said: “The self-employed tend to shun pensions, with one possible reason being a fear of tying money up into a pension that cannot be accessed until 55 at the earliest.
“While this is understandable, there are ways to be a smart saver if you are self-employed.
“Monthly contributions can be set up from as little as £20, making it easy to establish a positive habit, with the ability to make additional lump sum top ups when the finances allow.”
But for those who are in work, perhaps the simplest and most effective advice is to simply encourage them to get the most out of their workplace pension.
David Stevens, life advice director at LV, said: “Tax breaks and employer contributions mean that workplace pensions are vital to help ensure pension savings are as high as possible.”
He added that simply tracking down all your pensions could help get the most out of what savings you have.
The average person is expected to have 11 different jobs and could easily have as many different pension arrangements.
But one recommendation he emphasised, which might prove a harder sell, is just to take financial advice at all.
A recent FCA study found around three in 10 - 28 per cent - said advice would represent good value for money only if it were offered at £100 or less and a further 10 per cent said advice would be good value for money at £250.
Both of these figures are significantly lower than the amounts typically charged by advisers.
Mr Stevens said: “Taking financial advice is also important to ensure someone is on course for the retirement they want and help consider what other assets could be used to fund retirement.
“The squeezed middle may think paying for advice is yet another cost they cannot afford, but with personalised product recommendations and on-going support based on individual needs, it should be seen as an investment in their future.”
But like all investments in the future, this process has to start as early as possible if the squeezed middle are to get anything worthwhile out of it.
And that’s something only they can address – not any politician.
Damian Fantato is deputy news editor for FTAdviser