Fewer than one in 10 Britons to secure ‘comfortable’ retirement, report says
Data suggests only 9 per cent of retirees will achieve the income required for this standard of living
Fewer than one in 10 Britons is on track to achieve a “comfortable” standard of living in retirement, according to new data that underscores the severity of under-saving into pensions.
For someone living on their own, a comfortable lifestyle requires an annual income of £45,400, according to the annual Retirement Living Standards report by industry body Pensions UK, a level that only 9 per cent are forecast to hit. A “minimum” standard of living in retirement would cost £13,900 a year, while a “moderate” lifestyle would cost £32,700.
The data, calculated for Pensions UK by the Centre for Research in Social Policy at Loughborough University, forecast that around four in five people (82 per cent) of the working population would reach the minimum standard of living in retirement, while only one in five (23 per cent) would retire with a moderate standard of living.
“This is out of step with what some people expect for their retirement,” said Zoe Alexander, executive director of policy and advocacy at Pensions UK.
Alexander said the problem was particularly acute for middle and higher earners, who are at risk of a greater drop in living standards at retirement.
“While many people will reach a ‘minimum’ standard of living, far fewer are on track to achieve the more moderate or comfortable retirement most say they want,” she said. “That gap is particularly pronounced for those on middle and higher incomes, who often expect to maintain something close to their working-life lifestyle but are not saving at levels that make that realistic.”
The data comes as the government’s Pensions Commission explores how saving levels and retirement “adequacy” can be improved through policy. It is due to issue its final recommendations next spring, but in an interim report last month, it outlined the challenges presented by an ageing population and the relatively weak wage growth over the past couple of years that has squeezed people’s ability to save.
The commission will consider how the income thresholds and minimum contribution rates for auto-enrolment — a policy introduced in 2012 to nudge employees into saving via workplace pension schemes — will need to be adjusted in future. The minimum contribution level is currently set at 8 per cent of qualifying earnings, of which employers must pay at least 3 per cent — a total that pension experts have long deemed insufficient.
The commission also said stronger guardrails were needed around how workers receive their retirement income, especially as guaranteed final salary-style pensions were increasingly being replaced by defined contribution schemes, which place all the investment risk on the individual.
Pensions UK estimated that a comfortable retirement would require a pre-tax income of £54,720. When taking the non-means-tested state pension into account, this means the saver would need a DC pot of between £560,000 and £845,000. For a two-person household, each person’s pot would need £315,000 to £470,000.
For a one-person household to reach the “minimum” retirement standard of an income of £13,900, a pension pot of £23,000-£34,000 would be required.
The rising cost of food and other essentials has also driven up the amount that people need to save to achieve target outcomes, according to Charlene Young, senior pensions and savings expert at investment platform AJ Bell.
“Sticky inflation baked into the record price hikes we saw in the early 2020s means the pension pot values required to generate those incomes” have soared, Young said, “and some people are likely to find themselves behind”.
Pensions UK’s projections did not account for housing costs, which can vary wildly due to regional price differences, and the number of pensioners renting privately or paying a mortgage is on the rise. The Pensions Commission’s interim report estimated that renting throughout retirement “can easily require over £200,000 of extra pension saving”.
Pensions UK’s Alexander said rising numbers of younger people in particular anticipate paying housing costs beyond retirement. “We do make clear that those who expect to still be paying rent or a mortgage in retirement need to plan for those costs on top of the headline figures,” she added.
Ahead of further changes to UK pension policy, Alexander urged employers to “go further than the minimum — for example through stronger matching contributions” to help bridge the gap until policy catches up and legislates for higher savings levels.
Increasing longevity is putting pressure on public finances and there are questions around how sustainable the state pension is over the longer term.
“Against that backdrop, policy can only go so far,” said Rebecca Williams, financial planning divisional lead at wealth manager Rathbones. “The biggest impact still comes from what individuals do themselves — starting early, saving consistently, and making the most of workplace pensions and employer contributions.”