Young people typically now in their 20s, known as Generation Z, are likely to need at least £3 million to retire comfortably due to the erosive impact of inflation, according to new analysis by Rathbones Group, one of the UK’s leading wealth management firms.
The calculations, based on the amount needed for a ‘comfortable’ retirement as defined by the Pensions and Lifetime Savings Association (PLSA)*, show that a 25-year-old today would need a pension pot of £3.1 million to retire at age 65 and live comfortably over a 25-year retirement.
This figure factors in 65 years of inflation uprating at 2% annually (40 years until retirement at age 65, followed by 25 years in retirement to age 90) illustrating how inflation erodes the value of money over time.
In today’s terms, this equates to over £1.4 million – the amount needed by someone retiring now at age 65 – for a comfortable retirement over 25 years. For a two-person household where both individuals are aged 25, the figure rises to £4.3 million (£1.9 million in today’s terms).
The challenge of saving for retirement has been amplified for younger generations by the current economic landscape, where housing costs, student debt, and broader cost-of-living pressures hinder saving efforts.
Rebecca Williams, Divisional Lead of Financial Planning at Rathbones, says: “The figure is shocking and serves as a stark reminder of how inflation can quietly erode retirement savings. What’s considered an adequate retirement nest egg today may barely scratch the surface of what Gen Z will need when they retire.
“While a comfortable retirement means different things to different people, younger generations face higher hurdles – from high housing costs to student debt – while also needing to ensure their savings stretch further to account for greater longevity.”
Pensions eases savings burden
To build a retirement pot of £3.1 million by age 65, a 25-year-old would need to save approximately £1,600 per month (or £19,200 per year). This assumes contributions increase by 2% annually (e.g. through pay rises) and the pot grows at 5% per year.
Those saving into a pension benefit from tax relief at their marginal rate, and employer contributions through workplace pensions help ease the burden.
In contrast, someone relying on cash savings with 2% annual interest would need to save nearly £3,000 per month (or £35,800 per year) – almost double the amount required under the pension scenario, and without the benefits from tax relief and employer support.
This analysis excludes State Pension entitlements, which could supplement retirement income, and does not account for potential costs such as mortgage or rent, social care, or income tax on pension withdrawals.
A ‘moderate’ lifestyle would require £2.2 million for a single person (£3.1 million for a two-person household), while a ‘minimum’ lifestyle would require a pot of £947,700 million (£1.5 million for a two-person household).
Rebecca Williams adds: “With final salary schemes fading into history, the responsibility for retirement savings increasingly falls on individuals. Auto-enrolment has helped lay the groundwork, but minimum contributions often fall short – especially for those in irregular or gig economy roles, where pension gaps are common. Frequent job changes can also leave savers with scattered, forgotten pots.
“Starting early and saving consistently is key; even modest, regular contributions can grow substantially over time. With a longer investment horizon, younger savers can typically afford to take on more risk, potentially boosting returns. Regular pension top-ups benefit from compound growth and tax relief, while maximising workplace pension contributions – especially employer matches – is essentially free money.”
“We’re also seeing the ‘Bank of Mum and Dad’ help out, from junior SIPPs to gifts for adult children.”
