Pension savers face £12,000 annual retirement income shortfall

4 February 2025

The average pension saver faces a £12,000 shortfall in their annual retirement income, according to new research by Royal London.

A study of 4,000 non-retired respondents found the average pension saver hopes to retire on an annual income of £48,868, including the full state pension which is currently £11,542.

However, analysis by Royal London found that a 22-year old worker with a starting salary of £24,000, making the minimum 8% pension contributions, and with a 2.5% annual pay rise and annual compounded investment growth of 5% after fees, would have a pension pot of £468,000 at the age of 67. Including the state pension, this would provide them with an annual retirement income of around £36,600, more than £12,000 short of their desired amount.

The research found that the majority of workers are aware of the potential shortfall in their pension savings, with 60% believing they are either not saving enough for retirement or don’t know if they’re saving enough.

Clare Moffat, pension and tax expert at Royal London, said: “Many people have an idea of how much they would like in retirement but that doesn’t always match the amount that they have managed to save. This means that they might not be able to retire in the style they wish.

“It’s important to understand how much you need in retirement and the PLSA’s Retirement Living Standards can help with this. Discovering any potential shortfall sooner can give you time to take action to improve your lifestyle in retirement.”

The research also highlighted concerns about the gender pension gap, with women continuing to lag behind men in their pension wealth. According to the findings, men are twice as likely to have a personal pension compared to women (34% vs 16%).

Using the same example as above, if the individual reduced their hours to 50% at age 35 when they had a child and then increased their hours at age 51, instead of a retirement income of approximately £36,600 including the state pension, it would be around £32,000.

Moffat added: “There are many reasons for the gender pension gap, including lower salaries among women, higher levels of unpaid caring responsibilities and the effect of the menopause. However, taking advantage of financial incentives such as employer contributions and salary sacrifice can help. Even small increases in your monthly contributions can have a dramatic increase in the pot you retire with.”

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