A pensions crisis is brewing among the pre-retirement generation as the UK hits “peak pensioner” and the wealth of future retirees is increasingly exposed to the vagaries of the stock market, a top economic think-tank has warned.

Those that are a decade from the retirement age may not even have saved enough to last until they die, according to Paul Johnson, director of the Institute for Fiscal Studies.

This could lead to a situation in which things go “horribly wrong” for society and individuals, he said.

Pensioner incomes rose faster than non-pensioner incomes for nearly 30 years, but this trend has halted, heralding a “peak pensioner” moment, he added.

Paul Johnson of the IFS think-tank is warning of a ‘peal pensioner’ moment Credit: David Rose

The focus on this gap in income growth between current retirees and millennial workers has failed to recognise the vulnerability of those now ­approaching retirement. Many of this cohort have poorer quality pensions than their predecessors and have not done sufficient financial planning, Mr Johnson said.

Individuals in late middle age will be the first generation to retire with ­defined contribution pensions.

These pensions, which are built on employee and, in some cases, employer payments, are put into investments by a pension provider.

As a result, the value of these pension pots can rise or fall depending on how investments perform, leaving them exposed to market fluctuations. Pre-pensioners now risk drastically straightened futures if markets crash, and government policy has failed to mitigate for such a possibility, Mr Johnson says.

“Educated professionals 20 years ago would have had defined benefit pensions. You’ll [soon] have a generation getting to pension age more dependent on their defined contribution pots, holding lots of risk in terms of their longevity and investment returns.

The IFS says the pension pots of those who are soon to retire face have no protection from the movement of the markets

See more at: https://uk.finance.yahoo.com/news/warning-pensions-crisis-future-retirees-212035780.html