More than three-quarters of workers are not on track to save enough for a moderate standard of living in retirement, according to a new report from pensions trade body Pensions UK.
The report warns that many people could face a sharp fall in income when they stop working, as rising bills push up the amount needed for a secure retirement. It estimates that only 23% of the working population are on course to reach what it describes as a moderate retirement lifestyle.
For a single person, that moderate lifestyle is now estimated to cost £32,700 a year after tax. For a couple, the figure is £45,400. Pensions UK said those figures had increased compared with last year, mainly because of higher spending on food and socialising.
The warning adds to growing concern that many people are not saving enough through workplace and private pensions, despite the impact of automatic enrolment over the past decade.
What different retirement standards cost
Pensions UK estimates the annual income required for three levels of retirement: minimum, moderate, and comfortable.
A minimum retirement lifestyle is estimated to cost around £13,900 a year for a single person and £22,500 for a couple. This level is designed to cover basic needs, while still allowing some limited leisure spending.
According to the report, the minimum standard includes enough money for a couple’s weekly groceries, a one-week holiday in the UK, eating out roughly once a month and some low-cost leisure activities about twice a week. Around 82% of the working population is expected to reach this level.
The moderate standard is higher and is intended to provide more financial flexibility, including a wider range of social and leisure activities. However, only 23% of workers are currently on course to reach it.
A comfortable retirement is estimated to cost £45,400 a year for a single person and £62,700 for a couple. Pensions UK said only 9% of workers are likely to reach this level.
Figures are a guide, not a guarantee
The retirement living standards are developed and maintained independently by the Centre for Research in Social Policy at Loughborough University.
They are based on discussions with members of the public about what people are likely to spend in retirement, including food, transport, clothing, holidays and social activities. The figures are designed to help people understand what their pension savings may need to provide.
However, Pensions UK said the figures should be treated as a guide. Housing costs are not included, which means people who still rent or have a mortgage in retirement may need significantly more than the headline figures suggest.
The trade body said individuals should adjust the standards to reflect their own circumstances, particularly where housing costs, care needs or other personal spending pressures are likely to affect retirement income.
Calls for more pension saving
Pensions UK said workers, employers and the Government all have a role to play in improving retirement outcomes.
Pension providers already send annual statements that estimate the income someone’s savings may provide in retirement. However, the report suggests many people still risk falling short of the income they expect or need.
The Government has also raised concerns about pension adequacy. Last year, ministers said they were reviving the Turner Pension Commission, which first reported in 2006 and helped lead to the rollout of automatic enrolment into workplace pension saving.
The Government and the commission’s interim report have both suggested that people are not saving enough. According to Government estimates, people drawing their pension 25 years from now could be £800 a year worse off, or 8% worse off than pensioners today.
The report also highlights the gender pension gap. HMRC figures suggest women have around half as much saved in pensions as men, with women starting to fall behind from the age of 28.
Zoe Alexander, from Pensions UK, said: “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.”
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