Fewer than 10 per cent of Brits to achieve a comfortable retirement

Large numbers of Brits are at risk of facing a retirement ‘cliff edge’ as people fail to save enough to achieve a moderate or comfortable retirement.

For someone living on their own, a comfortable lifestyle would require an annual income of £45,400, a level only nine per cent of Brits are on track to hit, according to the latest retirement living standards report from Pensions UK.

A comfortable retirement allows an individual to afford luxuries and hobbies such as dining out, a new car and foreign holidays without financial stress.

A moderate lifestyle for one would require £32,700, which only 23 per cent are anticipated to reach, while a minimum lifestyle would cost £13,900 a year.

All three measures have increased over the past year, reflecting higher costs for essential items as well as social activities.

Zoe Alexander, executive director of policy and advocacy at Pensions UK, said: “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. The Government is right to be considering whether minimum contributions need to rise through the work of the Pensions Commission.”

Auto enrolment standards

In contrast, over 80 per cent are on track for a minimum lifestyle, signalling the ongoing pension saving crisis, with many Brits failing to capitalise on auto-enrolment.

Workers have the option of upping their auto-enrolment contributions beyond the legal minimum of eight per cent, with employers obligated to pay a minimum of three percent and employees making up the other five per cent, but many do not choose to boost their savings. 

The data comes as the revitalised Pensions Commission looks into the issue, considering whether income thresholds and contribution rates for auto-enrolment may need to be adjusted in the future, with many pension experts deeming the current standards insufficient.

Alexander said: “We… encourage people to speak to their employer and see whether the organisation is prepared to support them to save above the minimum, such as higher rates of matching pension contributions. 

“This could help ‘bridge the gap’ until policy catches up and we see higher savings levels set in legislation.”

The commission is due to release its final recommendations next spring, but its interim report released last month outlined the challenges of an aging population and how weak wage growth has stifled retirement savings.

Tax shakeup

Work and Pensions Committee Chair, Debbie Abrahams, also called on the government to do more to raise awareness of the adequacy gap, in particular amid the rising state pension age, preventing Brits from accessing the cash at an earlier stage.

Abrahams said: “The Government needs to undertake an awareness raising campaign to ensure that individuals and employers are all aware of how big the current gap is.

“With the State Pension age rising, the shortfall in pensions will become more acute for those approaching retirement, leading to stress, ill health and isolation in too many cases. This cannot be allowed to happen.”

Others expressed confusion at government tax policies, questioning why tax incentives are being stripped back in the middle of a saving crisis.

Craig Rickman, personal finance expert at Interactive Investor, said: “Recent policy proposals, notably the IHT reforms set to take effect next year and salary sacrifice being scaled back in 2029, appear even more puzzling. 

“Moving the goalposts and chipping away at valuable tax incentives may disincentivise savers at a time when many need all the help, encouragement and support they can get.”

Quilter’s calculations also argued that in order to achieve a comfortable retirement, a Brit would need a pension pot of £691,000, and argued tax changes may make pension saving unattractive.

Jon Greer, head of retirement policy at Quilter, said: “The current policy landscape, including… the never-ending threat of further pension tax changes at each budget, have made things increasingly confusing for savers. 

“This may make pensions seem less attractive, but pensions should still be viewed as an incredibly efficient way to save for retirement and these figures bring into sharp focus just how important it is that people take ownership of their savings.”