Millions of people across the UK are ‘sleepwalking into retirement poverty’, according to a report
Millions of people across the UK are “sleepwalking into retirement poverty”, a report has warned, as rising living costs outstrip pension savings and key groups slip through the cracks of the system.
A total of 15.3 million people – over a fifth of the population – are now at risk of financial hardship in old age, according to Scottish Widows’ latest Retirement Report. That is 1.6 million more than in 2023.
Even as pension savings have edged up slightly, rising prices have cancelled out progress, according to the report.
Inflation, currently at 2.6 per cent, continues to eat away at retirement pots, leaving many saving more but ending up worse off.
Pete Glancy, head of pensions policy at Scottish Widows, said: “The findings are a wake-up call. We’re seeing a generation sleepwalking into retirement poverty.
“Our research couldn’t be more timely, spelling out just how crucial targeted measures are in preventing millions from living in retirement poverty in the coming years.”
At the centre of the problem is a misunderstanding, according to Scottish Widows: what people think they need for retirement does not match what it actually costs.
A “minimum” standard of living in retirement – covering basics like food, energy, clothes and social participation, but not housing – now comes in at around £14,800 a year.
Scottish Widows says certain groups are at particular risk, and could face worse outcomes. These groups are outlined below.
Gen Z – people in their 20s
Among the most vulnerable are people in their twenties – Generation Z. Most are enrolled in workplace pension schemes, but for many, that is where retirement planning ends.
Burdened with high rents, low wages and the cost of simply getting by, saving for anything beyond the next few months is a struggle.
The research found that a quarter (25 per cent) prioritise emergency savings whereas 13 per cent say they cannot save at all.
The report says 42 per cent of young people in their twenties are at risk of poverty in retirement and 23 per cent will only be able to afford a minimum retirement lifestyle.
Low to middle earners
For people in their thirties and forties, especially those earning between £20,000 and £35,000 – just lower than the average wage – the picture is also fairly bleak.
They are working, often full-time, and putting into pensions – but only the minimum under auto-enrolment, which totals 8 per cent of qualifying earnings.
This group faces a 60 per cent income drop in retirement on average, with 70 per cent seeing their income halved.
The UK’s 4.4 million self-employed workers are facing what the report calls an “invisible crisis”.
Shut out of the auto-enrolment scheme that benefits employees, they are left to create their own savings.
Many do not have a plan, and more than half (51 per cent) are not saving enough to cover even basic needs in retirement. A quarter (23 per cent) are not saving anything at all.
Top tips for a healthier retirement
Scottish Widows is calling on the Government to make changes to pension policies.
The Government is set to embark on the second stage of a pensions review soon, looking at adequacy.
Glancy said: “There are three key areas that must be addressed urgently: auto-enrolment, self-employed contribution rates and housing, considering both home ownership and affordable housing.”
Until that takes place, there are things you can do to boost your own savings, according to Scottish Widows:
- Save 12-15 per cent if you can: Aim to put aside 15 per cent of your income (including employer contributions). If you can’t manage that yet, start smaller and increase when you can – even 1-2 per cent extra helps.
- Start young: Saving in your twenties gives your money more time to grow – £1,000 saved at 20 could be worth £2,500 in today’s money by 65.
- Check your state pension: Many do not realise how much they will get or when. Check your forecast at gov.uk, and apply for national insurance credits if you have had career breaks.
- Track down lost pensions: An estimated 3.3 million pension pots are forgotten. Use a pension tracing tool and consider combining them if it could save you fees.
- Review your pension yearly: Life changes, and so should your savings. Set a reminder to check your pension at least once a year.
- Keep an emergency fund: A financial cushion helps you handle surprises without dipping into retirement savings.
