Why the UK’s millennials fear that they will never be able to retire

We asked them a simple question: How much do you pay into a private pension? The answers that came back throw a stark light on savings and retirement planning, as Jedidajah Otte reveals

Many younger people, struggling with high rents, student loans and low wages , are scratching their heads about why the government has decided to throw billions of pounds at people already wealthier than many of them ever will be.

A little over a week ago, chancellor Jeremy Hunt used his first budget to announce a multibillion-pound tax giveaway to Britain’s wealthiest pension savers – a decision Labour is vowing to reverse.

Ministers hope the overhaul of taxfree pension allowances will encourage experienced NHS consultants to work longer.

But the policy – forecast to cost more than £4bn between now and 2028 – has prompted a debate on whether a huge tax break for the top 1% of earners is a good use of taxpayers’ money, as the vast majority of UK workers will be unable to benefit.

The millennial generation (generally those born in the 1980s and mid-1990s) is shaping up to be in a significantly worse financial position by retirement age than many of their parents and grandparents.

And with the oldest now in their early 40s, many are arguably running out of time to save for retirement – if they can squirrel any money away at all – and are less likely to own a home, or receive a generous company pension.

The Observer asked UK millennials to get in touch via an online callout to tell us how much they were paying into a private pension .

Mike, 32, a solicitor from Yorkshire, was one of hundreds who responded. “I pay nothing, and have no savings,” he says. “It’s likely that I’ll die before I can retire.

“I earn an OK salary of £32,000, but because I live alone, my living costs are enormous – rent is over 45% of my salary. I have student loans to repay from university and law school.

“My work insists I have a car. I don’t have a wealthy family who can help out. So, if I paid into a pension, I would essentially have no money left for myself.”

A few did say they were on track to achieve a comfortable retirement income, having managed to accrue several hundred thousand pounds by middle age.

But almost all of these were whitecollar workers with high-paying jobs in London or the wider south of the country, with generous company pension schemes.

However, many of those who say they are far behind with pension contributions are living in places the government has repeatedly said it wants to “level up”.

Among them is Josh, a 29-year-old IT worker living in Lincoln, which has recently been awarded £20m in levelling-up funding. “I have no pension plan at all, apart from contributing £80 a month to my workplace scheme since I started my current job last year. My employer pays in £120. I only have about £1,200 in my pot,” he says.

“I’ve been told you’re supposed to put 10% of your pay into a pension, but I’ve never earned enough to do that, despite having a specialist job in the education sector. I currently make about £25,000.”

The Pensions and Lifetime Savings Association advises that a single householder will need a retirement income of about £37,300 a year for a “comfortable” retirement – assuming they live mortgage and rent-free.

“This stat makes me feel quite upset,” Josh says. “I’m renting a council flat as I can’t afford to rent privately, or save enough for a mortgage. In this cost of living crisis, it’s hard to even buy a week’s worth of food – I’m struggling from pay cheque to pay cheque.

“Jeremy Hunt’s new pension scheme feels very unfair. I’m going to work until I’m a very old man.”

Only about a quarter of millennials have done “a great deal of planning or thinking” about retirement, according to a study by Standard Life.

Many respondents told us they were confused about how much they should pay into a pension, or how much they might need to even be able to afford to retire.

May, from London, works in transport and says she has only recently increased her pension contributions to 10% of her salary after accidentally reading about the importance of pension saving.

“I feel there is very little education about pensions,” she says. “I had the idea that my dad lives happily off his company pension, so surely so will I.

“Then I saw an article saying this isn’t the case for millennials, and now I’m worried. I didn’t even know people had pensions beyond their workplace one.”

Rather typically for someone her age, she has moved jobs several times and has lost track of six different small workplace pension accounts. “I have been trying to track three of them down. I do save, but a lot of that will go on housing, and if I have children, I can’t imagine being able to save.

“I look at the pensions triple lock, and what the budget just did, and think, ‘I won’t benefit in the way that current retirees do’. I feel like the old and young are being pitted against each other.”

Scores of millennials, many well into their late 30s and early 40s, shared the view that high housing costs were the main reason they could not afford to pay enough into their pensions, and that they were prioritising saving up for ever-rising house deposits.

Scott Wright, a 38-year-old retail manager from Sheffield, is paying £700 in rent a month and has a pension pot much smaller than recommended for his age because he is still saving for a home deposit.

“I have about £10,000 in there at the moment, and have reduced my monthly pension contribution to 10% of my salary about six months ago.

“My employer contributes 4%. This isn’t enough for the retirement I want – I’d have to contribute much more – but I’m balancing saving for a pension, saving for a house, and living. I can’t imagine I’ll ever retire fully.”

Hunt’s new pension allowances, he says, “are never going to affect me”.

Isabel*, a product manager from London, is among many who said they had opted out of paying into their workplace pension scheme in order to save for a mortgage deposit.

“I’m on £85,000 but I have zero pension savings. I always opted out,” she says. “In two years I’ll have enough for a deposit, and then I’ll start paying into a pension plan.”

Buying a home in a cheaper area will not be feasible, she adds, as her work is in bigger cities, and she worries about not being able to pay off what would be a large mortgage before retirement.

“I honestly have no idea how I’ll pay my bills when I’m retired – it’s a bleak prospect, so I try to not think about it. I honestly don’t know how I’m going to live.”

I pay nothing into a pension, and have no savings. It’s likely that I’ll die before I can retire’ Mike, solicitor

* Name has been changed