Three-quarters of workers are not on track to achieve a moderate income in retirement, according to a new report that lays bare the scale of Britain's pension savings crisis.
The report, published on Tuesday, defines a moderate lifestyle in retirement as costing £32,700 a year for a single person and £45,400 for a couple. Only nine per cent of Britons are on course to reach the higher threshold considered necessary for a comfortable retirement, which for a single person stands at £45,400 per year.
“A new report reveals 75% of workers are not on track for a moderate retirement income, with only 9% expected to achieve a comfortable retirement. Moderate lifestyle costs £32,700 for a single person and £45,400 for a couple, prompting warnings of a retirement 'cliff edge'.”
The findings, drawn from analysis by the Pensions and Lifetime Savings Association (PLSA), suggest millions face a retirement 'cliff edge' as they fail to save enough to maintain their standard of living. The PLSA's retirement living standards are widely used by the industry and government to guide savings targets.
A comfortable retirement, as defined in the report, would allow for luxuries such as annual holidays, a reliable car and regular leisure activities. The moderate standard covers a more basic level of spending but still includes some financial headroom for occasional treats.
The report's authors warn that current savings levels are insufficient for the vast majority of workers. With auto-enrolment contributions fixed at a minimum of 8 per cent of earnings (3 per cent from the employer, 5 per cent from the employee), many are falling short of the required pot size to generate the recommended income.
No regional breakdown was provided in the report, but the figures apply across England, Scotland, Wales and Northern Ireland, where pension rules and auto-enrolment are consistent.
The PLSA has called for a review of the auto-enrolment minimum contribution rates and for the government to consider raising them. Currently, contributions are scheduled to increase under planned reforms, but no concrete timeline has been set.
What This Means For You For homeowners: You may need to factor in higher housing costs if you are relying on your property as a pension asset. The report's income targets assume mortgage-free living, but many will still face rent or maintenance bills. For renters: Retirement costs are higher as you will need to cover rent from your pension income. The moderate single income of £32,700 assumes no housing costs, so renters may need significantly more. For workers: If you are not saving more than the auto-enrolment minimum, you are likely to fall short. Consider increasing your contributions to your workplace pension or opening a private pension. For pensioners: If you already receive a state pension, check whether your total income meets the moderate threshold. The full new state pension is currently around £10,600 a year, well below the needed levels. For families: Couples retiring together will need a combined income of £45,400 for a moderate lifestyle, meaning both partners must have adequate savings.