The expected future living standard in retirement provided by defined contribution (DC) savings fell in Q2 of 2025, reflecting reduced expected pre-retirement investment returns and the latest increases to the Pensions UK Retirement Living Standards (RLS), Aon’s UK DC pension tracker has revealed.

Over the quarter (April to June 2025), the tracker fell from 70.0 in Q1 to 68.2, as younger savers saw notable falls in their expected retirement incomes while older members experienced modest improvements, with the overall decline partly offset by April’s rise in the state pension.

Indeed, the picture varied significantly across age groups.

Aon’s youngest modelled saver, aged 30, saw the sharpest fall in expected retirement income, down around £1,085 a year (2.9 per cent), driven largely by reduced future return assumptions.

Gains in equity markets and the state pension uplift softened the fall but were not enough to outweigh the change in long-term expectations.

The 40-year-old saver also experienced a decline, with expected income dropping by £750 a year (1.8 per cent) as lower future return assumptions offset positive investment performance over the quarter.

In contrast, savers closer to retirement benefited from stronger market performance and improved post-retirement return assumptions.

Aon’s 50-year-old saver recorded a £200 annual increase (0.5 per cent) in expected retirement income, largely due to strong quarterly investment returns on their larger pot.

The 60-year-old saw the largest improvement, with expected income rising by £550 a year (2.4 per cent), supported by both market gains and higher return assumptions in retirement.

Despite this, Aon noted that the oldest saver remained the least well-positioned in retirement terms, albeit still achieving around 150 per cent of the “minimum” RLS.

The quarter also saw the first update to the Pensions UK RLS since 2023, with far more modest changes than the steep increases seen previously.

Indeed, the minimum standard fell by £1,000 to £13,400 a year, while the moderate standard rose by £400 - less than the recent £470 state pension increase.

The comfortable standard rose by £800 (1.85 per cent), though this was still offset mainly by the state pension uplift.

Aon partner, Matthew Arends, said savers “can take some comfort” from the restrained increases, but warned that inflation and tight household budgets continue to make retirement saving challenging.

Aon also highlighted the backdrop of heightened market volatility throughout 2025, driven by geopolitical tensions and global tariff disputes.

After a weak start to the year, investment performance rebounded in Q2, resulting in noticeable swings in pension pot values.

With this in mind, Arends reminded savers that pensions remained a long-term investment and noted that volatility could benefit younger savers through pound-cost averaging, though it can be concerning for those nearing retirement.

He also emphasised the value of gradual de-risking, typical of lifestyle strategies, in protecting pots as retirement approaches.

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