Millions of people are not saving enough to secure even the minimum standard of income during retirement, with many feeling they will not be able to retire at all due to financial pressures.
According to a study by Scottish Widows, 38% of people are not on track for the most basic retirement lifestyle , which is defined by the Pension and Lifetime Savings Association as having enough money to cover basic needs with some left over for fun.
For example, this includes being able to afford a one-week UK holiday and having £50 a week to spend on groceries. The minimum standard assumes retirees do not have a car.
Pete Glancy, head of pensions policy at Scottish Widows, 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.
"It is likely to be a long time before Britain has been saving enough to give future pensioners the outcomes they hope for."
The figures show a worsening from last year’s report and equates to an additional 1.2 million people found to be saving inadequate amounts .
Adrian Lowery, financial analyst at wealth management firm Evelyn Partners, says: “This report lays bare the retirement wake-up call for millions of workers and savers, who will have to either work for longer than they want, cut back on their expectations for the sort of life they expect in retirement, or give up on the idea of leaving anything to their children.
“Unfortunately many people’s dream of retiring early is just that – a dream – because as this report suggests, a close look at the numbers will show their savings aren’t really on track for a decent retirement well into their sixties, never mind their late fifties.”
How much pension do I need?
When thinking about how much you need to save for retirement, some of the things to consider are:
Research by the Pension and Lifetime Savings Association suggests an annual income of £43,100 is required for a comfortable retirement.
Interactive Investor has updated these figures to show how much money you are likely to need each year during retirement, depending on three different lifestyle levels.
These amounts won’t work for everyone and you will have to consider your individual circumstances and lifestyle, but it provides a good outline of how much you can expect to need.
The change over the past year is even more stark when you consider the size of the private pension pot needed to deliver those incomes. For a minimum standard it has jumped £23,400 over the last year to £59,900, for moderate it has risen £42,800 to £290,800, while for comfortable it has rocketed £68,700 to a total of £598,700.
Alice Guy, head of pensions and savings at interactive investor , said that the high rates of inflation seen over the past 18 months had had a “devastating impact on the spending power of peoples’ pension income”, meaning they needed a higher income just to maintain the same standard of living.
As a rough rule of thumb, some people aim to retire on two-thirds of their salary. The median average salary is estimated to be £33,000, based on ONS data from 2022, and when the two-thirds rule is applied, places the median earner between the PLSA’s moderate and minimum categories.
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