Retirement outlooks have continued to worsen in recent years thanks to rising living costs, with research from Scottish Widows revealing that two fifths (39 per cent) of people in the UK, aren't on track for a minimum lifestyle in retirement, up from 35 per cent in 2023.

The research showed that whilst pension saving levels have increased in the past 12 months, with projected retirement income rising to £17,200 from £15,500, they have failed to keep pace with the cost of living.

Indeed, the latest estimates from the Pension and Lifetime Savings Association's (PLSA) suggest that a minimum retirement lifestyle would cost a single person outside London £14,800 per year, excluding housing costs, leaving retirees with minimal funds after basic living costs.

According to the research as many as half (50 per cent) know they aren’t saving enough for retirement, with certain key groups facing even worse outcomes.

Younger savers were particularly vulnerable, as most young adults will be saving into a defined contribution (DC) pension through their employer, and relying on personal savings and the state pension, with competing financial goals making retirement specific savings a challenge.

Highlighting this, the report found that a quarter (25 per cent) of people in their 20s prioritise saving for emergency expenses, while 13 per cent aren’t able to save at all, and instead have emergency funds, house deposits and holidays as their main savings goals.

As a result, the National Retirement Forecast (NRF) projections suggest that more than two fifths (42 per cent) of young people in their 20s are at risk of poverty in retirement and 23 per cent will only be able to afford a minimum retirement lifestyle.

Low-to-middle earners were another group of concern, as the report found that squeezed low to middle earners, those on an income between £20,000 and £35,000 and in their 30s, are mostly likely (46 pere cent) to contribute the minimum 8 per cent contribution under auto-enrolment, which could leave them with a shortfall in retirement.

Indeed, Scottish Widows found that this group faces a 60 per cent income drop in retirement on average, with 70 per cent seeing their income halved.

The report also raised concerns around the retirement prospects of self-employed workers, who are excluded from AE, revealing that more than half (51 per cent) are at risk of not being able to cover their basic needs in retirement and just 25 per cent are on track for a minimum retirement lifestyle.

In addition to this, nearly two in five (39 per cent) self-employed workers believe they aren’t saving enough for retirement, with 23 per cent not saving anything at all.

Given these concerns, Scottish Widows stressed the need to build financial empowerment, arguing that being financially independent enables people to take control of their finances and plan effectively for retirement.

While 69 per cent of people feel financially independent, a quarter do not. And, over two in five (44 per cent) don’t believe they will ever be able to achieve this.

Scottish Widows head of pensions policy, Pete Glancy, said: “Our research couldn't be more timely, spelling out just how crucial targeted measures are in preventing millions from living in retirement poverty in the coming years.

"The second phase of the government's pension review must be broad enough to take a holistic view on people’s financial journey through life considering wide-ranging financial goals. There are three key areas that must be addressed urgently: auto-enrolment, self-employed contribution rates and housing, considering both home ownership and affordable housing.

“For now, the challenge is helping people make the most of what they have. It is essential to ensure people feel financially empowered to make informed decisions and take proactive steps for their future – with a strong sense of financial independence playing a key role.”

This was echoed by Moneybox head of personal finance, Brian Byrnes, who said that the findings paint a "stark picture" of the UK’s worsening retirement outlook.

"With 1.6 million more people now at risk of retirement poverty compared to last year, the urgency for action has never been clearer - especially for groups like Gen Z, low to middle earners, and the self-employed," she continued.

"Although pension saving levels have technically risen, they simply haven’t kept pace with the cost of living.

"We urgently need to equip people with the tools, support and confidence to take control of their financial future. That starts with access to clear, personalised information - something the government's pension dashboard can help provide."

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