Millions of pensioners are heading into retirement underfunded, with a third of UK adults facing poverty in their later years, according to Scottish Widows' latest annual retirement report. The new National Retirement Forecast (NRF) reveals that 31% of adults, equivalent to 12.2 million people, are on track for a less than minimum retirement lifestyle. This marks a decline from 39% (15.3 million) in 2025.
Reasons for Improvement
The report attributes this improvement to several factors. Those who are not saving through traditional pensions have increased their savings elsewhere. More individuals now expect to own their own homes when they retire, and falling energy costs have helped more people meet the minimum lifestyle standard. However, the report warns that this progress could be undone by predicted energy bill spikes following the Iran war.
Cost of Retirement
According to the Pensions and Lifetime Savings Association (PLSA), the cost of a minimum retirement living standard for a one-person household is £13,400 a year, while for a two-person household, it is £21,600 a year. Scottish Widows recommends increasing the statutory level of saving through workplace auto-enrolment from 8% to 12%.
Under current rules, employees must contribute a minimum of 5% into their workplace pension, with employers contributing the remaining 3%. Scottish Widows calculates that raising total contribution rates from 8% to 12% on the first £30,000 of salary would increase projected retirement savings by an average of £40,000. For those aged 22–29, the impact is even greater, increasing pots to around £114,000 at retirement.
Impact of Higher Contributions
The analysis also shows that raising the minimum auto-enrolment contribution from 8% to 12% across total salaries would reduce pension poverty from 32% to 13%, with an average pot increase of £65,000. If the increase were applied only to the first £50,000 of salary, the average pot would increase by £55,000, reducing pensioner poverty to 14%. The remaining 13% at risk of pension poverty are primarily self-employed, part-time, or unemployed individuals.
Scottish Widows also urges the government to create an equivalent of auto-enrolment for self-employed people.
Expert Commentary
Pete Glancy, head of pension policy at Scottish Widows, said: “This report paints a complex picture. While the fall in pension poverty compared to a year ago is a step in the right direction, this shift in retirement fortunes is complex and the current state of the nation's savings is still polarised. The factors we can control, like how much we save or how much we expect to receive in retirement, may improve, but can easily be thrown off course by shifting external factors like increases to energy and general cost of living.”
He added: “Most people are unlikely to have enough in their pension pots alone to fund their desired retirement, so pensions can no longer be viewed in isolation. Considering pensions alongside other savings, investments and housing wealth and advancing the Government’s Open Finance agenda will be key to improving retirement outcomes for all.”
