Quick summary: A new report from Pensions UK has revealed a critical savings deficit showing that more than three quarters of British workers are unlikely to achieve a moderate standard of living in retirement due to inflation pushing up the baseline costs of food and socialising. This widespread shortfall carries severe public policy and healthcare implications, raising the risk of a sharp income drop that could drastically damage the long term mental health and physical well-being of an ageing population. To avert this structural crisis, financial experts and industry bodies are urging the government to modernise automatic enrolment systems while advising individuals to utilise tax efficient investment options to actively safeguard their future financial security.
More than three-quarters of UK workers are unlikely to achieve a moderate standard of living in retirement, according to a new report highlighting a significant savings gap.
According to the latest Retirement Living Standards from Pensions UK, a moderate lifestyle costs £32,700 a year for a single person and £45,400 for 2 people, yet just 23% of the working population are on course to reach this level. A comfortable lifestyle costs £45,400 annually for a single person and £62,700 for a couple, with only 9% of workers in line to achieve this. A minimum retirement lifestyle, which 82% of workers would reach, costs around £13,900 annually for a one-person household and £22,500 for two.
The figures, calculated independently by the Centre for Research in Social Policy at Loughborough University, are based on public discussions about likely spending on food, transport, holidays, clothing, and other areas. They exclude housing costs and are intended as a guide for retirement planning. The incomes needed have risen compared with a year ago, mainly because of higher costs for food and socialising, broadly in line with inflation.
“Far fewer will go beyond that. That is out of step with what people expect for their future. Without action, too many risk facing a cliff-edge drop in income when they stop work,” said Zoe Alexander from Pensions UK.
Pensions UK has called on workers, employers, and government to encourage greater saving, noting that pension providers send annual statements estimating future retirement income. The government has also revived the Turner Pension Commission, originally reporting in 2006, to examine saving levels. People drawing their pension in 25 years could be £800, or 8%, worse off per year than today, according to ministers.
Women hold about half the pension savings of men, with the gap beginning to widen from age 28, according to figures from HM Revenue and Customs and investment platform AJ Bell.
Steps to close the gap
Derence Lee, Chief Finance Officer at mutual society Shepherds Friendly, offers practical steps to strengthen finances
- Plan effectively and set realistic milestones: Understand your future costs and consider the best places to keep your money. Emergency savings are best kept in easy-access accounts, while ISAs offer greater flexibility and growth potential for medium- to long-term goals such as a house deposit, with interest earned being tax-free.
- Tackle debt strategically, starting with high-interest debt: These cost more over time. A financial adviser can help find an approach suited to individual circumstances.
- Build an emergency fund: Covering three to six months of essential expenses to protect against unexpected costs such as job loss or car repairs. Starting small and building gradually can help prevent falling back into debt.
- Protect savings from inflation: Leaving money in a standard account can erode purchasing power over time. A Stocks and Shares ISA offers a tax-efficient way to invest in a range of assets, including index funds, bonds, and equities, while shielding returns from income and capital gains tax.
- Cut unnecessary spending: Reviewing subscriptions, switching providers, and renegotiating bills. Small changes can free up funds without requiring major sacrifices.
Financial experts emphasise that early action on debt reduction, emergency savings, and tax-efficient investing can help close the retirement savings gap for many across the UK.