More people are set for a worse retirement standard than the figure recorded last year.
Nearly two out of five people (38%) are on track for living standards in retirement below the minimum level set out by the Pensions and Lifetime Savings Association (PLSA). It gives the minimum as a single person with £14,400 annual income (£22,400 for a couple).
This is up from 35% in 2023, equating to an extra 1.2 million individuals who risk facing poverty in retirement.
According to the Scottish Widows Retirement Report – now in its 20th year – there’s a “growing polarisation” between those who are enjoying retirement today and those who won’t enjoy the period when it finally comes.
It noted some of the challenges facing the next cohort of retirees, such as the increasing cost of living, stagnant real wages and productivity since 2007, 42% of new mortgages having end dates in retirement, the rising state pension age (68 by 2046) and the declining proportion of employees with occupational defined benefits (from 46% in 1997 to 28% in 2021).
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By contrast, 84% of those currently in retirement are enjoying their later years, particularly those with good health and few financial worries.
And Scottish Widows revealed that over the past two decades, there has been a 70% increase in pension participations, a 51% increase in real average pension wealth and a 36% reduction in the real gender pension gap for those aged 50-64.
Taking the challenges together with the positives, the nationally representative poll of 6,000 people revealed that most people would like to retire at the age of 62, but 54% think they will have to work longer than they would like. On average, this could lead to seven extra years of work. Meanwhile, 27% said they don’t feel like they will ever be able to retire, with just a third of respondents saying they think they are currently preparing adequately for retirement.
This highlights that the state pension plays a vital role in meeting day-to-day costs, as well as a “worrying gap between people’s desired retirement age and the adequacy of pension savings”. Future retirees also worry it may not be there to benefit them.
Following its findings, Scottish Widows is proposing a roadmap to increase pension contributions from 8% to 12%, and even 15% for those who can afford to do so. It said this increase should fall on the employer so that workplace pensions are funded on a 50/50 basis. It comes as it said that saving 8% of a band earnings into a pension “is not sufficient to deliver adequate retirement income”.
It also wants to see pension reform to lower the contribution threshold so it is based on the first pound earned, an equivalent auto-enrolment scheme for the four million self-employed workers and establishing a Lifetime Savings Commission to increase financial resilience and give support to individuals.
‘Long time before Brits save enough for hoped pension outcome’
Pete Glancy, head of pensions policy at Scottish Widows, said: “The growing gap in retirement outcomes and people’s quality of later life, between those who are currently retired and those who will retire in the future, is of great concern.
“However, people are starting to think about how their private pension pot might interact with their state pension entitlement to plan their retirement. But, there is still a real reliance on the state pension, and while some will be able to use their private pension pot to give them the flexibility they are looking for in terms of retirement age, it’s only starting to dawn on others that they may end up working for much longer.
“It is likely to be a long time before Britain has been saving enough to give future pensioners the outcomes they hope for. In the meantime, helping people to make the very most of what they have is going to be critical. It’s the right moment for the new Government to take a holistic view on people’s financial resilience throughout life, paying particular attention to those whose retirement outcomes are predicted to be much lower.”
Glancy added that at present, only the wealthiest tend to rely on professional support from a qualified financial adviser.
“As an industry, we need to find a way to give people better support in making good financial decisions at a price more savers are willing and able to pay.”
