Reality starts to bite for pension ‘under-savers’

It is hardly a secret that most Britons are not saving enough in their pensions to cover the costs of retirement.

New research, however, indicates that working-age people are waking up to the problem. Most millennials and generation Xers are only too aware that they are facing a shortfall, and many are steeling themselves for some difficult later years.

This is one of the findings in a new report published by YouGov, which explores people’s hopes versus their realistic expectations regarding their retirement finances.

The report also examines differences in generational attitudes towards retiring, how much people have put away in savings, and how they expect to support themselves during later life.

Growing concern

A key finding is that it is not correct to say that people are sleepwalking into a financially insecure retirement. In fact, 38% of Brits are not confident about their financial security in retirement, compared to 33% who are. That lack of confidence rises quickly as people hit their thirties and forties.

They are right to be concerned. Even after more than a decade of auto-enrolment into workplace pension schemes, 38% of people say they are not making any savings towards their retirement at all.

A further 28% are saving up to 10% of their annual income, while just over a fifth (22%) don’t even know how much they’re currently saving. We are still a long way off the 15% total contribution level that Lord Turner’s pension commission recommended nearly 20 years ago.

That much is common knowledge in the industry. What YouGov’s report uncovered is the growing realisation among the public of what the consequences of this ‘under-saving’ are likely to be.

One in five (21%) believe they will have to work to supplement their income in retirement.

Half of Gen Xers (50%) – people born between 1965 and 1980 – indicate they are not confident about their financial security in retirement. Millennials, born between 1981 and 1996, exhibit a similar figure (46%).

The research also highlighted the gender pensions gap: 44% of women said they do not feel confident about their financial security in retirement, compared to 31% of men.

Lessons for policymakers

This pessimism about retirement prospects from such a significant proportion of the population is likely to raise the political salience of the issue.

Policymakers trying to address it should look at international comparisons in the research. Countries like Australia and Singapore have much higher retirement saving rates, so there may well be lessons to be drawn from them.

There are also lessons closer to home. Using YouGov’s ever-growing source of live consumer data, the report profiles those planning to retire in the next 12 months in detail.

The 9% who were under 55 had a specific set of characteristics compared to the over 55s. Unsurprisingly, these people feel much more confident about their finances. As a group, they are much more likely to set personal budgets, to take risks on the stock market and to move their money around as a saving tactic.

In other words, the people who exhibited higher levels of knowledge and engagement with their financial planning were more likely to save successfully.

If policymakers are looking to raise the retirement savings rate, then driving higher levels of financial literacy and engagement would seem to be a good place to start.

Matthew Palframan is director of financial services research at YouGov.

Further reading

Planning for tomorrow: GB retirement report 2024 – YouGov report

Savers less confident over retirement income, study shows (3 July 2024)

Aon survey raises concerns over workplaceDC adequacy (5 August 2024)