Over half (60 per cent) of UK adults are not confident they will have saved the £500,000 needed for a moderate retirement standard of living, research by St. James’s Place has suggested, indicating that many are "severely" underestimating how much they need to save.
 
St. James’s Place’s report analysed where people believe they are on their retirement journey in terms of estimated pension wealth and looked at how current levels of understanding of what is needed to live well in retirement could be impacting the UK’s confidence and ability to reach the savings targets required.

Among those saving beyond the state pension, UK adults estimated their total pension wealth to be £50,923 on average.

In addition to this, nearly half (48 per cent) of pension holders estimated they have less than £50,000 in pension savings, while 61 per cent estimated they have below £100,000.

The report also showed that across the UK, 17 per cent said they only have a state pension in terms of retirement wealth, although St. James’s Place said that, "positively", the impact of auto-enrolment has meant that 7 per cent of those aged 35 and under solely rely on the state pension.

However, this figure rose to 19 per cent for those approaching retirement (aged 55 to 64), while for those aged 65 to 74, the figure was 28 per cent.

In terms of current total retirement savings across workplace and individual pension plans for these groups, the average for those aged 55 to 64 is £76,151, and those aged 65 to 74 estimate they have around £89,349. 

St James Place said that whilst some people may be supplementing their retirement incomes by working longer or part-time, these levels of pension wealth are far from the estimated pension pots required for a more comfortable standard of living in retirement.

Compared to figures from the Pensions and Lifetime Savings Association (PLSA), these figures would only fund a minimum retirement lifestyle and is a £400,000 shortfall for the savings required to achieve a moderate one.

The report pointed out that only 28 per cent felt confident that they could achieve a moderate standard of living, which according to the PLSA is a retirement fund of £31,300, or up to £500,000 in total, which will ensure financial security including a more modest two-week foreign holiday per year, an older car, and eating out a few times a month.

Those closer to retirement were the least confident they would be able to save the amount required for a moderate standard of living by the time they retire, with 15 per cent of those aged 45 to 54, and 17 per cent of those aged 65 to 74 confident they will have £500,000 saved by retirement.

This is compared to 40 per cent of those aged 16 to 24, 40 per cent of those aged 25 to 34, and 32 per cent of those aged 35 to 44 who felt confident they could save £500,000 by retirement.

The study also highlighted that the situation is comparable when it comes to having a comfortable retirement lifestyle. According to the PLSA, a single individual would require £43,100 annually or approximately £790,000 in their pension savings.

Almost seven in 10 (67 per cent) said they were not confident they could build up this amount of money by retirement, while 21 per cent said they were confident they could save this amount by retirement.

St. James’s Place stressed that the majority of UK adults are underestimating what is needed to live moderately in retirement, as 23 per cent of UK savers believe they need less than £50,000 in their retirement pot to live moderately well in retirement. 

Meanwhile, 37 per cent believed they needed £100,000 or less, 44 per cent estimated they needed £200,000 or less, and 54 per cent said they would need £400,000 or less.

For those closest to retirement, aged 55 and over, 36 per cent believed they need less than a £50,000 retirement pot to achieve a moderate standard of living in retirement.

The analysis also showed that a substantial number of people are not engaging with their pension or making saving a priority. 

One in three (32 per cent) admit they have no idea what pension they have, while 19 per cent said they have never even reviewed their pension.

In addition to this, 23 per cent said putting money aside each month for their pension is simply not a priority.

Over half (56 per cent) of those with a financial plan feel secure about their future finances, compared to 33 per cent of those without a financial plan, suggesting how having a financial plan can improve confidence and future financial security.

The report indicated that putting money aside for retirement each month is a key priority for 49 per cent of those with a financial plan compared to 25 per cent of those without.

St. James’s Place said this can be seen across all income levels, as 36 per cent of those earning up to £20,000 a year that have a plan said pension saving is a big priority each month, compared to 16 per cent with the same income that do not have a financial plan in place.

The research showed that those with a plan in place are also more likely to review progress against their goals, as 64 per cent state they have reviewed their pension in the last two years, while 33 per cent without a plan have done this.

Commenting on the report, St. James’s Place director of advice policy and operations, Alexandra Loydon, said: “As a society, we face significant gaps in awareness and preparedness for retirement.

“The shift from defined benefit (DB) to defined contribution (DC) pension schemes has transferred the burden of saving for retirement onto individuals and, while the introduction of automatic enrolment into workplace pension schemes marked a significant milestone in promoting retirement savings, the harsh reality is that many individuals are facing significant shortfalls.”

She emphasised that it was “concerning” that many people lack an understanding of the amount they need to put aside to fund a moderate or comfortable standard of living in retirement and are not confident they will reach these standards by retirement.

Loydon pointed out that even among those approaching retirement, confidence is “worryingly low”.

“Our research shows that having a financial plan in place builds confidence and engagement with retirement finances,” she continued.

“As we move forward, decisive action at a policy, industry, and individual level is required, such as integrating financial education into the school curriculum, addressing the current shortfalls in auto-enrolment contributions, and enhancing access to financial advice and guidance to help overcome barriers to retirement planning.”

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