The proportion of people saving enough to ensure that at least basic costs are covered in retirement continues to fall amid a cost-of-living crisis, according to Scottish Widows’ latest retirement report.
This annual report shows that just 35 per cent of the population are saving enough to ensure they have at least a minimum standard of living in retirement — down from 38 per cent a year ago.
This decline mean that an extra 1.2m people are now facing potential financial difficulties in retirement when compared to the previous 12 months.
The report also found that more than half of UK adults (54 per cent) now expect to work longer than they would like, on average by seven years. Scottish Widows says this highlights a “worrying gap” between people’s desired retirement age and the adequacy of their pension savings.
In addition it found that over a quarter (27 per cent) of those who have made retirement plans don’t feel that they would ever be able to afford to stop working.
This is the pension company’s 20th annual Retirement Report which highlights the growing problem of pensions inadequacy in the UK. It found that only a third (34 per cent) of respondents think they are currently preparing adequately for retirement, with 38 per cent not on track to meet the minimum retirement lifestyle, that is set out by the Pensions and Lifetime Savings Association.
The survey also shows people’s reliance on the state pension, with just over half (54 per cent) of respondents expecting the state pension to eventually form a meaningful portion of their retirement income, with three quarters (75 per cent) calling it “hugely important “in helping them pay for everyday necessities.
However, 12 per cent of people are not convinced this level of help will be available to them by the time they retire.
Scottish Widows head of pensions policy Pete Glancy says: “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 the UK is 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.”
He adds that at present only the wealthiest tend to access financial advice and called on the industry to find ways to ensure people of all income have better support when it comes to making financial decisions, particularly around retirement.
Barnett Waddingham partner Paul Leandro says: “This research paints a worrying picture for future retirees, and is a stark reminder that we’re yet to defuse the ticking timebomb that is the UK’s pension system.
“Time and time again, research has pointed to the inadequacy of pensions contributions across all age groups, and until there is a significant increase the situation will only worsen. This is particularly concerning as defined contribution workplace, pensions have become the main source of retirement savings for a significant proportion of the population, and means real change will be needed if people are to have the retirement they desire.
“Various research suggests that realistically people should be saving on average around 12 per cent or more of their annual income into their pension pot, however actual levels are often far below this even when taking into account employer contributions. And more often than not, this is not done out of intention – but a lack of awareness and engagement.”
“The recently announced pensions review offers some hope that things will change, but the concern is about timing. Pension inadequacy, whilst on the list, is a secondary priority for the review. The longer the delays, the more the risk that future cohorts of people will not have secure or dignified retirements.”
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