Nearly 9 million people in the UK will enter retirement with between just £3,650 and £6,750 a year in income from a private pension, according to a new report, leaving many struggling to pay essential bills.
The figures mean this group must manage on between just 43% and 80% of the amount those with the national average for an annual private pension, which is £8,500, get to live on.
People with disabilities have the lowest pension income at just 43% of the UK average, giving them a private pension income of only £3,650.
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Other groups most at-risk from retirement poverty include carers, people from ethnic minority backgrounds, self-employed people, and multiple jobholders.
Women are also most affected, as a whole and as divorced women and single mothers.
Vulnerable groups missing out on pension savings
Pension provider Now:Pensions and think tank the Pensions Policy Institute, which wrote the report, found since they last looked at the issue in 2022, people from ethnic minority backgrounds and carers have seen an increase in employment rates and, consequently, pension savings.
However despite the rise these groups are still falling behind, with 62% to 80% of private pension saving compared to the UK average.
The data for women showed since 2020, many more are pension saving using auto enrolment, rising from 77% to 85%. But they are still retiring with just 67% of the UK average private pension, and single mothers with just 54% of the UK average.
Private pension income for the self-employed is just 54% of the UK average.
Would reforms to auto enrolment help improve pension savings?
Since its introduction in 2012, auto enrolment – where by law employers have to put staff into a pension, unless the employee opts out – has transformed how UK workers save for retirement, bringing 11 million more people into a workplace pension.
However, many people do not meet the eligibility criteria for auto enrolment, miss out on the opportunity to save for their retirement, and are forced to rely more heavily on the state pension.
Joanne Segars, Now:Pensions chair of trustees, says: “Without further policy action, millions will continue to struggle to achieve a secure retirement. That’s why we’re suggesting key reforms.”
The proposed reforms include removing the £10,000 auto enrolment earnings trigger, scrapping the lower earnings limit on pension contributions, ensuring pension savings are considered in divorce settlements, and introducing a family carer’s top-up.
John Adams, senior policy analyst at the PPI and author of the report, adds: “The rate of employment in the general population has fallen slightly since the previous report [in 2022], and under-pensioned groups such as carers, single mothers and divorced women are particularly affected.
“Changes to automatic enrolment criteria could make huge strides in pension saving, such as allowing the income from multiple jobs combined to count toward the earnings trigger or removing the earnings trigger entirely.”
How much do you need to retire?
How much someone needs to retire depends on their individual circumstances. But the Pensions and Lifetime Savings Association (PLSA) has analysed what life in retirement might cost at three different levels; minimum, moderate and comfortable.
These figures are for total expenditure, not income. For many people, the state pension, currently £11,973 a year for those eligible for the full new amount, will be a big contribution to cover their costs. The rest, however, would need to come from private pensions.
Minimum – single £14,400, couple £22,400 (per year)
This will get you all the basics to cover your daily needs, with some money left over for treats. For a single person it looks like spending £50 a week on groceries, £25 a month on food out of the home, and £15 per fortnight on takeaways.
The minimum income level doesn’t allow for a car, but does give £10 per week on taxis for a single person, and £100 per year on rail fares. Plus a week long UK holiday, basic TV and broadband and a streaming service.
Moderate – single £31,300, couple £43,100 (per year)
At this level, a single person gets an extra £5 a week for groceries, another for food out of the home, and £10 every week on takeaways, plus £100 a month to take others out for a monthly meal.
The moderate income allows a single person to maintain a three year old small car, replaced every seven years, as well as £20 a month on taxis and £100 per year on rail fares. For travel there is a fortnight 3* all inclusive holiday in the Mediterranean and a long weekend break in the UK to look forward to.
Comfortable – single £43,100, couple £59,000 (per year)
In a comfortable retirement, retirees can look forward to quite a bit of luxury. A single person can replace their kitchen and bathroom every 10 to 15 years, keep a small car that they replace every five years, enjoy a fortnight 4* holiday in the Mediterranean with spending money and three long weekend breaks in the UK, plus an extensive bundled broadband and TV subscription.
Shopping budgets also go up a bit too. Around £70 a week on food for a single person, £40 a week on food out of the home, £20 a week on takeaways, and £100 a month to take others out for a monthly meal.
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