- With UK adults estimating their total pension wealth to be £50,923 on average, 60% are not confident they’ll have saved the £500,000 said to be needed for a moderate retirement standard of living
- One in five (23%) believe they’ll only need under £50,000 in their retirement pot to live moderately well in retirement
- Almost one in five (17%) say they’ll just have the state pension for retirement wealth
- One in three (32%) admit they have no idea what pension they have and one in five (19%) have never reviewed their pension
- SJP’s Financial Health Report outlines key areas of focus to ensure pension awareness levels and preparedness improve
UK adults are severely underestimating how much they’ll need to live moderately well in retirement, with many in turn not confident they can save enough to fund a more comfortable lifestyle in their later years, new research from St. James’s Place (SJP) reveals.
SJP’s new Financial Health Report analyses where people believe they are on their retirement journey in terms of estimated pensions wealth. In turn, it looks at how current levels of understanding of what is required to live reasonably well in retirement may be impacting the nation’s confidence and ability to reach the savings targets required.
Among those that are saving beyond the state pension, UK adults estimate their total pension wealth to be £50,923 on average, with nearly half (48%) of pension holders estimating they have less than £50,000 in pension savings, and a third (61%) estimating they have below £100,000.
In addition, across the nation, almost one in five (17%) say they only have the state pension in terms of retirement wealth.
Positively, the impact of auto-enrolment means only 7% of the younger generation, aged 35 and under, are solely relying on the state pension. However, among those approaching retirement, this rises to 19% of 55- to 64-year-olds, and 28% of 65- to 74-year-olds.
Looking at those either at retirement or closer to retirement, current total retirement savings across workplace and individual pension plans sits at £76,151, on average, amongst 65- to 74-year-olds, while 55- to 64-year-olds estimate they have £89,349. Whilst some people may be supplementing their retirement incomes by working longer or part-time, these levels of pension wealth are far from the estimated pension pots required for a more comfortable standard of living in retirement. Compared to figures from the Pensions and Lifetime Savings Association (PLSA)3, they would only be enough to fund a minimum retirement lifestyle and represents a £400,000 shortfall for the savings required to achieve a moderate one.
Many aren’t confident they’ll achieve moderate standard of living in retirement
According to the Pensions and Lifetime Savings Association (PLSA), in order to meet a moderate standard of living in retirement, a person would require a retirement fund of £31,300 – or up to £500,000 in total – to ensure financial security including a more modest two-week foreign holiday per year, an older car, and eating out a few times a month.
However, three in five (60%) people are not confident they will have £500,000 saved up by the time they retire – with just 28% feeling confident they can achieve this reality.
Those approaching retirement are the least confident in achieving moderate or comfortable retirement
Concerningly, those closer to retirement with perhaps a more accurate grip on their pensions savings were the least confident they’d be able to save the amount required for a moderate standard of living by the time they retire. Just 15% of those aged 45-54 and 55-64 are confident they will have £500,00 saved by retirement. Similar levels are reported by those aged 65-74 (17%) and likely to be at or already in retirement.
This compares to a third (32%) of 35–44-year-olds being confident in achieving a moderate standard of living in retirement and two in five 16–24-year-olds (40%) and 25–34-year-olds (40%) feeling confident they’d be able to save £500,000 by the time they retire.
It’s a similar picture when it comes to reaching a comfortable standard of living in retirement – which the PLSA estimates a single person will need £43,100 per year or up to £790,000 in total in their pension pot. Overall, more than three times as many people don’t feel confident they’ll be able to build up this amount of money (67%) compared to 21% who say they are confident they can save this amount by the time they retire.
Majority of UK adults underestimating what’s needed to live moderately in retirement
SJP’s Financial Health Report also found that many people are severely underestimating how much they need to ensure a reasonable standard of living in retirement.
A staggering one in five people (23%) believe they need less than £50,000 in their retirement pot to live moderately well in retirement. Nearly four in ten (37%) believe they need £100,000 or less in total, over four in ten (44%) estimate they need £200,000 or less, and over half (54%) say they would need £400,000 or less. Among those closest to retirement, aged 55 and over, more than a third (36%) believe they need less than a £50,000 retirement pot to achieve a moderate standard of living in retirement.
A substantial number are also not engaging with their pension or making saving a priority. One in three (32%) admit they have no idea what pension they have, while one in five (19%) say they have never even reviewed their pension. Meanwhile nearly a quarter (23%) say putting money aside each month for their pension is simply not a priority.
Financial planning improves future financial security
Amid concerning levels of awareness and engagement with pensions, SJP’s research highlights how having a financial plan4 in place can improve confidence and future financial security. Over half (56%) of those with a financial plan feel secure about their future finances, compared to a third (33%) of those without a financial plan.
Putting money aside for retirement each month is a key priority for nearly half of those with a financial plan (49%) compared to a quarter (25%) of those without. This is reflected across all income levels, with 36% of those earning up to £20,000 a year who have a plan saying pension saving is a big priority each month, compared to 16% with the same income that don’t have a financial plan in place.
Those with a plan in place are also more likely to review progress against their goals, as 64% say they’ve reviewed their pension in the last two years, while just 33% without a plan have done this.
Alexandra Loydon, Director of Advice Policy & Operations at St. James’s Place, comments: “As a society, we face significant gaps in awareness and preparedness for retirement. The shift from defined benefit to defined contribution pension schemes has transferred the burden of saving for retirement onto individuals and, while the introduction of automatic enrolment into workplace pension schemes marked a significant milestone in promoting retirement savings, the harsh reality is that many individuals are facing significant shortfalls.
“It is concerning that many people lack an understanding of how much they need to put aside to fund a moderate or comfortable standard of living in retirement and are not confident they’ll reach these standards by retirement. Even among those approaching retirement, confidence is worryingly low.
“Our research shows that having a financial plan in place builds confidence and engagement with retirement finances. As we move forward, decisive action at a policy, industry and individual level is required, such as integrating financial education into the school curriculum, addressing the current shortfalls in auto-enrolment contributions, and enhancing access to financial advice and guidance to help overcome barriers to retirement planning.”
