Three in 10 adults across the UK – an estimated 12.2 million people – risk facing poverty in retirement, according to new research by pension provider Scottish Widows.
This comes as research from the Living Wage Foundation reveals that seven in ten aren’t saving enough into their workplace pension to achieve a decent standard of living in retirement.
Here, Which? explores the latest research and looks at the practical steps you can take to maximise your pension savings.
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The groups most likely to face poverty in retirement
According to Scottish Widows' latest National Retirement Forecast, which projects retirement outcomes based on savings, behaviour and income sources, fewer people are estimated to face poverty in retirement compared with last year's projections: 12.2 million people (31%) versus 15.3 million (39%).
But it says this progress is partly driven by falling energy prices, lowering retirement costs and could soon be undone as conflict in the Middle East affects energy prices, as well as by modest improvements among those without pension arrangements.
And women, self-employed people, black and mixed-race people, and those with physical or mental health conditions are all more likely not to meet the threshold for a 'minimum' retirement living standard.
Meanwhile, 32% of workers saving into a defined contribution pension expect to have to work past retirement age, according to the Living Wage Foundation's recent survey of 2,000 workers, 500 of whom are on low pay.
Of those surveyed who provided information about their workplace pension saving, seven in 10 were not saving enough to achieve the Living Pensions standard – the rate at which workers need to save to achieve a decent standard of living in retirement.
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Is your employer doing enough to support your retirement?
Almost nine in ten workers surveyed by the Living Wage Foundation said it’s important that employers contribute enough into workers’ pensions to provide a decent standard of living in retirement.
But Katherine Chapman, executive director of the Living Wage Foundation, says that current pension contribution levels fall short of what people need for a decent standard of living, with women, renters, disabled workers and people living alone at particular risk of being left behind.
The Living Pension standard is a voluntary savings target that employers can commit to, to help workers build up a pension pot that will cover the cost of their everyday needs in retirement.
For defined contribution pensions, the current annual savings benchmark is £3,150, equivalent to 12% of a full-time living wage salary (with no more than £1,310 or 5% coming from employee contributions).
Under auto-enrolment rules, employees must contribute at least 5% of their qualifying earnings and employers must contribute at least 3%. If you save at this rate, you would need to earn approximately £45,500 a year to put £3,150 a year in your pension pot.
Separately, Scottish Widows estimates that increasing statutory auto-enrolment contributions to 12% could reduce the proportion of people facing pension poverty to 13%.
What is the government doing to tackle pension poverty?
Last year, the government relaunched the Pension Commission to help tackle the retirement crisis, as figures showed that four in 10 people were under-saving for retirement
The aim of the commission is to review the UK’s pension system and recommend ways to improve retirement outcomes. An interim report is expected within the next month, and final recommendations are scheduled for 2027.
Possible reforms include changes to auto-enrolment terms and measures to address the gender pension gap and lower rates of saving among some ethnic minority groups and self-employed workers.
Separately, in the few weeks, the Pension Schemes Bill became law and is set to bring major reforms to the UK’s pension market.
Changes include automatic consolidation of small pots, new rules on how schemes report their value for money, and more help with accessing your pension at the point of retirement. The government says the measures could add an extra £29,000 to the average worker's pension pot.
Rising living costs and competing financial pressures can make saving more for retirement a real challenge, but there are simple steps you can take to ensure that your pensions work as hard as possible.
1. Start saving as early as possible
Even if you only save a small amount, pension tax relief and employer contributions (if you’re eligible) can significantly boost your savings.
And starting early means your pension will have longer to benefit from investment growth.
Make sure you understand how much your employer contributes to your pension: some will offer more than the minimum 3% or match your contributions, which can significantly boost your pot.
If you’re job-hunting, pay attention to the pension benefits offered or look for standards such as Living Pension accreditation.
3. Save more with salary sacrifice
Using salary sacrifice, where you swap part of your salary for pension contributions, is one of the most effective ways to save for retirement.
This is because it reduces your taxable pay, meaning you’ll pay less in National Insurance. For example, if you’re a basic-rate taxpayer, a £100 pension contribution made via salary sacrifice will cost £72, as you'll save an extra £8 in National Insurance in addition to £20 in income tax.
Not all workplaces offer salary sacrifice, so speak to your employer if you’re unsure how your pension scheme works. From April 2029, the amount you can save into your pension via salary sacrifice will be capped at £2,000, so consider increasing your contributions now.
Use the government’s state pension forecast tool to see whether you’re on track for the full state pension. You’ll need at least 10 years of National Insurance contributions to receive any state pension and 35 years to receive the full amount.
You can fill gaps in your record for the past six years by buying voluntary contributions, but make sure you’re getting all the National Insurance credits you’re entitled to first. For example, if you’re taking time out of work to care for children, claiming child benefit automatically qualifies you for Class 3 National Insurance contributions
