Financial challenges for Generation Z need urgent attention. Young people in their twenties, or about to enter the work force, tace a combination of soaring housing costs and a fragile job market. All this has undermined a generation's confidence that they can ever secure their financial future.
Recent research highlights a bleak outlook for savings and retirement, as young adults navigate a fundamentally different economic landscape from previous generations. The danger is that many could be left financially vulnerable in their later years and see no need to engage with savings and investment. But it is not too late for policy changes to drive improvement and create hope.
Gen Z workers increasingly work in the gig economy or hold several part-time positions, attracted by flexibility but missing out on traditional workplace benefits. Their ability to save is compromised by high housing costs and often also student debt. While Scotland's free tuition materially reduces the burden of higher education on young people, many do need loans. University graduates can face a financial squeeze early in their working life, with a very high marginal tax rate as they begin to repay loans. Addressing these burdens, combined with high living costs, makes longer term saving a low priority.
The financial wellbeing of Gen Z will have profound long-term implications for social equity and the sustainability of pension systems. With longer lifespans, those entering work face extended working lives and a longer period of retirement. Traditional retirement models must adapt to these changes, moving away from the idea of a fixed retirement date. Pension reform in recent years has placed more responsibility on the individual to build the funds needed in later life.
In future, the majority of workers will not retire with any guarantees on work pensions, with the value depending instead on variable investment returns. State pension cannot be expected to fill the gap. What must be recognised is the need to shift from the current rigid life-stage model to a more flexible approach to retirement, possibly with an element of continuing part-time work in later life. Currently, three-quarters of retirees stop working completely at retirement.
Gen Z is the first generation to benefit from widespread automatic enrolment in work pension schemes. Nevertheless, it is not universal, with some workers still missing out. And attitudes to pensions are typically negative. Surveys suggest that almost half of young adults believe the state pension will not exist by the time they reach retirement. Increasing lifespan combined with a shrinking workforce and stretched public finances. mean that retirement age will be extended in the future. It is hard to get a generation to engage with provision for a later lite that seems so uncertain.
Declining homeownership adds to the problems. This has been a cornerstone of retirement planning for previous generations but is not currently realistic for most of Gen Z. The average house price in the UK is now eight times the average annual salary, and homeownership rates for those in their early 20s have fallen by one third in two decades. Two generations ago, the average age of the first-time buyer was 26, but now that has moved into the 30s. That means that fewer young people are accumulating housing wealth, increasing the likelihood of renting in later life.
Change is needed but the UK government's pension review is moving slowly. Phase two of the review - to focus on pensions adequacy and include the challenges facing Gen Z - is delayed. A pensions bill addressing costs will come before consultation on the Gen Z issues. That means the needs of younger workers will be balanced against cost pressures on employers, plans to increase investment in British businesses, and a 2026 review of retirement age.
Additional risk to the financial security of younger workers comes from gig-based roles, self-employment and job changes. And research has found that one in four in Gen Z have considered quitting work in the past year, with mental health cited as a key factor. These concerns represent barriers to pensions saving. What is is needed is a system that better reflects modern working lives. Without meaningful reform, more young people will reach retirement without the savings necessary to maintain an adequate standard of living.
Priority should be given to expanding pension access beyond traditional employment. A system of increased portability of pensions benefits, attached to individuals rather than employers, would be a better fit with modern career paths. Gen Z changes jobs frequently, accumulating multiple small pension pots, often subject to disproportionate ongoing fees. Someone in their first job finding that the pension they earned might be worthless when they leave must surely undermine their faith in the financial system. Consolidating small pension pots as people move jobs, while ensuring reasonable costs, is essential to make the system work for young people. Unfortunately, a proposed Pensions Dashboard Programme to help individuals view all their pension savings in one place has been delayed.
Thought should also be given to modernising communications on pensions and savings. Traditional pensions information is often in written statements or static email notifications. Gen Z's digital habits might be better addressed with interactive tools and personalised digital engagement. Research notes that more than half of Gen Z individuals follow financial influencers, compared to older generations who rely more heavily on traditional financial advice. However, this presents additional risks as the unregulated nature of social media financial guidance means young people may encounter misleading or inaccurate information. Young savers need regulated, evidence-based, digital content to navigate guidance on platforms they actually use.
The challenges facing Gen Z reflect a system designed for a stability that no longer exists. Pensions providers need to think about how they can better support individuals, including those in Gen Z, to make financial choices that will support them later in life. Without meaningful intervention, we risk creating a retirement crisis decades from now. Policymakers and providers have an opportunity to reimagine financial security across the lifespan. For Gen Z, financial stability means new systems that provide security within the economic realities they actually face. It is time for meaningful reform