The expected future living standard in retirement provided by defined contribution (DC) savings rose in Q1 of 2025, driven by an increase in expected future returns pre-retirement, which offset negative actual investment performance, Aon’s UK DC pension tracker has revealed.

Over the quarter (January to March 2025), the tracker rose from 67.9 to 70.0, with younger savers seeing the most significant increase of around £2,050 per annum (5.9 per cent).

However, older sample savers (aged 50 and 60) saw their expected retirement income decrease by around £950 per annum (2.5 per cent), driven by a combination of weak benchmark investment returns over the quarter and a decrease in expected return assumptions post-retirement.

Indeed, Q1 2025 saw a poor start to the year for global equities, with a flurry of tariff announcements from the US, which led to increased market uncertainty.

Further volatility in markets has continued since the start of April, and, given geopolitical events, it is unlikely to reduce in the near term, Aon claimed.

The firm explained that these weak investment returns had a greater impact on the expected outcomes for our older savers, as they have accrued larger pension pots and are, therefore, most impacted by actual performance over a given quarter.

Overall, the oldest saver is expected to be the worst off in retirement, albeit with a retirement income of around 150 per cent of the ‘minimum’ Retirement Living Standard.

For the youngest savers, and despite falls in equity markets over Q1, these declines were more than offset by increases in expected return assumptions across all asset classes and a longer investment horizon to recover short-term losses.

Aon associate partner, Steve Leigh, said the figures underscored the importance of focusing on the long term when considering pension investments, particularly for early-to-mid-career savers.

“Short-term market shocks may cause an immediate change in the value of their savings, but the Aon UK DC tracker shows that future expectations of returns paint a different, and more complex, picture for expected outcomes,” he continued.

“Understandably, savers planning for retirement may be uncomfortable with relying on unpredictable future return expectations, particularly when witnessing falls in the value of their own savings. However, savers should remember that the ups and downs of markets are a normal part of investing.”

Looking ahead, next year will see a subsequent increase in the state pension age (SPA), with the move from 66 to 67 for individuals born after 5 April 1960.

Since the Aon UK DC tracker started, the SPA has increased for two of its sample savers, with both the 60-year-old and 40-year-old savers now having to wait an additional year to receive their state pension.

Without additional savings to bridge this gap, savers are likely to have to remain in employment longer and potentially delay their retirement by one year.

For sample savers, Aon suggested that the impact of receiving their pension a year later was an increase in expected retirement income of around £2,000 per year for the 40-year-old members and around £1,100 per year for the 60-year-old savers.

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