WE NEED TO DO MORE TO HELP SAVERS
Workplace Pensions Director.
Scottish Widows’ 2023 Retirement Report launched our new National Retirement Forecast. With one-third facing a financially difficult retirement, there is much we need to do to help people prepare.
It’s almost 20 years since the first Scottish Widows Retirement Report (PDF, 6MB), with our industry-leading research giving insights into the UK’s preparedness for retirement.
Things have changed since then. Auto-enrolment into workplace pensions has helped more people save for their retirement than ever before. The age at which people are eligible for their State Pension has equalised and increased to 66 for everyone (67 by the end of 2028). Pension freedoms brought flexibility.
National Retirement Forecast
So, are we more ready for retirement? The Scottish Widows Retirement Report 2023 (PDF, 6MB) now has a new unique National Retirement Forecast which uses the Pensions and Lifetime Savings Association’s retirement living standards to assess the kind of retirement lifestyle that people might be able to afford.
What we have done here though, is included non-pension assets in arriving at an income in retirement. No-one has done something quite like this before.
There’s good news. For most people, pensions are at the heart of their retirement preparations.
One-third are on track for a comfortable retirement, with an income of just over £37,000 allowing some financial freedom and luxuries. Those in their 30s are the most likely to reach a good retirement outcome thanks to auto-enrolment and good saving habits.
But there’s not so good news. One-third of those in their 20s are not on track for even a minimum lifestyle in retirement and could face significant hardship. They could struggle to cover the basics.
One in three face retirement hardship
The report also brings out clear differences in how people prepare for retirement. One in three overall (35%) are facing significant hardship in retirement – saving little or nothing into their pension. Then there are the after effects of the pandemic with wage stagnation, rising inflation and interest rates.
State pension knowledge gap
Then there’s the knowledge gap on state pension entitlement which prevents many people from effective retirement planning, with half (49%) not checking their eligibility and many not meeting the requirements for full state pension entitlement.
How different demographics save for retirement
This year we’ve also focused on some of the challenges facing marginalised groups in society, some of which we’ve never tracked before.
We now know disabled people are on track for a retirement income of just two-thirds of those without a disability, and the LGBTQ+ community and the self-employed look likely to face concerning financial issues in retirement. Half (48%) of self-employed people will struggle to pay for essentials, while 68% of LGBTQ+ people are concerned about running out of money.
What’s next? Four steps we can take on the back of our Retirement Report
So, what actions can government and pension providers take on the back of the 2023 Retirement Report to help people save for the kind of retirement that they hope for?
- Understand what is needed and personalise support and communications for key groups where pension provision is lower (such as those with disabilities, LGBTQ+ community).
- Help people get to know their state pension entitlement and what they can do to make the most of it. The state pension is an important part of most people’s retirement planning, but 58% don’t know when and how much they will get. Yet there are simple ways we can help them to find this out by encouraging them to easily check online on gov.uk.
- Develop a more holistic view of retirement for everyone in pension schemes so they can see how their state pension – and potentially multiple workplace pension pots – fit as part of their retirement planning.
- Influence government to bring more people into the auto-enrolment regime as it’s clear from the report that even a small level of private pension can help alongside the state pension.
We’ve made good progress to date but there is much more to do.
Read the full 2023 Retirement Report (PDF, 6MB). We also held a webinar covering the findings.