A third (31%) of UK employees are likely to face pension poverty in retirement, according to research by Scottish Widows.
Its latest National retirement forecast (NRF), which is published as part of its annual Retirement report, surveyed 6,224 adults, as well as an additional 1,000 adults to better understand the retirement prospects of minority ethnic groups.
The report highlighted a reduction in the number of respondents that are on track for a less-than-minimum retirement lifestyle, down from 39%, or 15.3 million people, in 2025 to 12.2 million.
This was driven by those who are not saving through a pension scheme increasing their level of savings elsewhere, and more people expecting to own their own home when they retire.
The report also revealed that increasing default contribution (DC) rates from 8% to 12% on the first £30,000 of salary would increase projected retirement savings by £40,000 on average. For those aged 22-29, this would increase pots to around £114,000 at retirement.
Furthermore, among DC scheme members saving below 12%, an auto-enrolment increase from 8% to 12% across total salaries would reduce pension poverty from 32% to 13%, equating to an increase of £65,000. If the increase were applied only to the first £50,000 of salaries, the average pot would increase by £55,000, with pensioner poverty reduced to 14%.
Pete Glancy, head of pension policy at Scottish Widows, said: “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.
“We must also ensure that choosing flexibility today, through self-employment or part-time work, doesn’t come at the expense of tomorrow. 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.”
