Rising living costs have worsened the nation’s retirement outlook since 2023, with 1.6 million more people risking retirement poverty, a new report from Scottish Widows has revealed.
Despite pension saving levels increasing in the last 12 months, they have failed to keep pace with the cost of living, Scottish Widows’ latest annual Retirement Report shows.
Two fifths (39%) of people in the UK, the equivalent to 15.3 million people, are not on track for a minimum lifestyle in retirement, up from 35% in 2023. According to the Pensions and Lifetime Savings Association, a minimum retirement lifestyle would cost a single person outside London £14,800 per year in today’s money, leaving retirees with minimal funds after basic living costs.
Across the population, as many as half (50%) know they are not saving enough, with Generation Z, low to middle earners and self-employed workers facing the worst outcomes.
Scottish Widows said most young adults will be saving into a defined contribution pension, as well as relying on personal savings and the state pension. However, competing financial goals make retirement savings a challenge, with 25% of people in their 20s prioritising saving for emergency expenses, while 13% are not able to save at all.
According to National Retirement Forecast projections, 42% of people in their 20s are at risk of poverty in retirement and 23% will only be able to afford a minimum retirement lifestyle.
Those earning between £20,000 and £35,000 and in their 30s are also facing retirement challenges, the report found. This group faces a 60% income drop in retirement on average, with 70% seeing their income halved. Amid financial pressures, 60% of people in their 30s know they are not saving enough and 30% don’t save.
Meanwhile, the UK’s 4.39 million self-employed workers remain excluded from automatic enrolment, leaving them financially vulnerable. Over half (51%) are at risk of not being able to cover their basic needs in retirement and just 25% are on track for a minimum retirement lifestyle.
Two in five (39%) self-employed workers believe they are not saving enough for retirement, with nearly a quarter (23%) not saving anything at all.
Scottish Widows’ report found that overall, 69% of people feel financially independent, while a quarter do not. Additionally, 44% do not believe they will ever be able to achieve this.
Pete Glancy, head of pensions policy at Scottish Widows, said: “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.
“The second phase of the Government’s Pensions Review must be broad enough to take a holistic view on people’s financial journey through life considering wide-ranging financial goals. 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.
“For now, the challenge is helping people make the most of what they have. It is essential to ensure people feel financially empowered to make informed decisions and take proactive steps for their future, with a strong sense of financial independence playing a key role.”
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