Younger adults anticipate a more financially demanding retirement, fuelled by a surge in housing costs, according to new research from Royal London.
More than 1 in 8 people in the UK (13%) believe they would personally need £100,000+ each year for a good standard of living in retirement.
The figure is significantly higher than the £43,900 Pensions UK’s Retirement Living Standards estimates that a comfortable standard of living will cost a person living alone. However, this doesn’t include housing costs and assumes that tax has been paid on income.
The research showed a generational divide in expectations; over one in five (22%) people aged 18-34 expect to need £100,000+ a year to have a good standard of living. Meanwhile, those closer to retirement (aged 50-69) appear more conservative, with only 3% expecting to need the same amount for a good standard of living.
Across all age groups, there is a notable gender gap in expected retirement income, with men anticipating needing between 18% and 30% more than women for a good standard of living, depending on their age group. Among younger adults (aged 18-34), men anticipate needing approximately £81,300 annually, while women think they will need around £69,000. This disparity continues across age groups, with mid-life men (aged 35-49) expecting £64,000 versus £49,400 for women, and men approaching retirement (aged 50-69) expecting £38,900 compared to £31,800 for women of the same age group.
The research also indicates a higher proportion of young people expecting to still pay rent or a mortgage once they have retired, compared to other age groups. Nearly half (48%) of younger adults (aged 18-34) expect to still be paying rent or a mortgage in retirement, compared to one in three of those nearing retirement (33%, for those aged 50-69). In combination with this, younger adults intend to retire earlier, on average intending to retire at 59 years old, putting added pressure on them to save enough to meet their target.
Additionally, the data shows over a quarter (26%) of people say they feel anxious about whether they will have enough money to retire after checking their pension balance, and 15% feel it’s either too late or too early to make meaningful changes.
Despite these concerns, few seek professional advice. Only one in four employees with a workplace pension (27%) have sought guidance or advice about their pension in the last twelve months and 17% have done so more than a year ago. However, over half of employees (52%) have never sought professional guidance or advice about their workplace pension, which could make saving for a good standard of living in retirement much more of a challenge.
Clare Moffat, pension and tax expert at Royal London, said: “It’s clear that younger adults think they’ll need significantly higher income when they’ve finished work than those closer to retiring. This could be driven by their cost of living and inflation expectations, and also because young people face greater housing uncertainty than those before them.
“With such a wide gap in generational expectations, it’s easy to suggest pension expectations are overblown, but for a generation that’s experienced multiple economic downturns and high inflation, many will be concerned for their future quality of life.
“Many younger adults are questioning whether their state pension and personal savings will be sufficient to meet their future needs, and they have to balance current costs against future pension expectations. Breaking down barriers to guidance and advice, especially in relation to cost and trust, will be essential to tackling generational divides.
“Lower expected retirement income among women may reflect concerns around pension adequacy, shaped by earnings gaps and time out of the workforce. This is an issue that will be looked at by the recently formed Pensions Commission. Women may also take a more cautious view of retirement needs, influenced by greater cost of living pressures. Whatever the cause, the disparity highlights the need to address some of the specific challenges women face when planning for retirement.”
