"This year the pressure seems to have intensified due to increasing inflation and interest rates continuing to climb."
One in three (35%) Brits could be facing poverty in retirement, according to Scottish Widows’ annual retirement report.
The report’s new National Retirement Forecast (NRF) uses the Pension and Lifetime Savings Association (PLSA)’s ‘Retirement Living Standards’ levels to calculate the quality of lifestyle that people are set to achieve when they stop working.
The NRF compares the retirement lifestyles within reach for different ages, ethnicities, genders and employment statuses, as well as zeroing in on underrepresented groups such as disabled people and the LGBTQ+ community. In forecasting savers’ anticipated lifestyles, the NRF recognises that factors other than pensions play a role in the income people will rely on in retirement and also accounts for housing costs.
By surveying societal segments in large numbers, Scottish Widows found that many societal groups – such as renters and young people – are disproportionately facing hardship, while others such as millennials are saving well for retirement.
The research found that almost half (43%) of the people predicted to struggle in retirement expect to be still paying rent. Rental costs amount to 60-70% of renters’ retirement income in several parts of the country, but this figure rises to 130% in London.
Almost half (41%) of people currently in their 20s are heading for hardship in retirement, with an average retirement income of £10,000 among this group.
Conversely, 43% of millennials are on track for a comfortable lifestyle, reflecting strong savings behaviours and the benefits of automatic enrolment.
On average, women will still receive a third less income in retirement than men (£19,000 vs £12,000).
In addition, the NRF highlights how employment patterns can create challenges for different demographics. Women, ethnic minorities and disabled people are disproportionately represented in lower paid and part-time jobs in which it is more difficult to accrue a sufficient pension pot.
Meanwhile, self-employed people generally lack formal incentives to save adequately compared to full-time employees. Bringing this to life, the average full-time employee is on track to receive £27,000 a year in pension income – nearly three times what the average part-time employee and the average self-employed person are on track for (£11,000 and £10,000 respectively).
In addition, living expenses remain a real concern for a large majority (75%) of Brits, which could be affecting retirement preparation. Against the backdrop of ongoing economic uncertainty, a worrying minority (21%) is also cutting back on essentials – up from 16.5% in 2022.
The disability pension gap
While the NRF reveals a challenging retirement landscape nationwide, it also indicates the particularly concerning outlook for disabled people, more than half (51%) of whom are set to face poverty in retirement.
The average disabled person will need to manage on £11,000 per year in retirement – just 61% of the income predicted for non-disabled people. According to disability equality charity Scope, disabled households need £975 more per month to secure the same standard of living as non-disabled households, meaning that the already considerable retirement income gap highlighted by the NRF may even be a conservative estimate.
Pete Glancy, head of policy at Scottish Widows, said: “Our new National Retirement Forecast paints a stark picture – one in three (35%) of us are facing the harsh reality of a retirement where we will struggle to make ends meet. Last year’s Retirement Report highlighted the impacts of the pandemic, cost of living and wage stagnation. This year the pressure seems to have intensified due to increasing inflation and interest rates continuing to climb.
“The solution needs to be threefold. We are calling on the Government to help end retirement poverty by implementing long-term reforms, such as ensuring that automatic enrolment can support those on lower incomes. Secondly, businesses need to do more to address the inequalities faced in the workplace by disadvantaged groups like women, disabled people and the LGBTQ+ community. Finally, the financial services industry must get better at effectively communicating with diverse groups to build trust and ensure that people of all incomes and demographics understand how to save effectively for retirement.
“The NRF has highlighted the importance of addressing the inequalities facing disabled people who have additional costs of living that make it harder to achieve a good lifestyle, build savings and plan for the future.
Employers must act now to resolve disparities in pay, progression and to close the pensions gap, while the government must advocate for more transparency from businesses to help disabled people to avoid the bleak reality of a retirement suffered in poverty.”
