Retirement Report reveals extent of pension challenge

Our 20th Retirement Report shows people need to save more. AE2.0 could be the key.

We’ve seen lots of change since the launch of our first Retirement Report 20 years ago, with the introduction of auto enrolment being the biggest and most positive one. It has helped an extra 10 million people save for their retirement through their workplace pension, while benefiting from employer contributions as well as their own.

The picture, though, is not all bright.

This year’s Retirement Report (PDF, 3MB) shows many people’s retirement prospects are worsening against the backdrop of cost-of-living challenges, higher mortgage and rent costs, and people’s lack of pension knowledge and engagement.

Reforms have led to real improvements over the last 20 years in how many people save for retirement and how much they save – but not all groups have seen their retirement prospects improve at the same pace, however.

Save more, work longer

Staggeringly, the report shows that the number of people not on track for even a minimum retirement lifestyle has worsened to 38%, that’s more than a third. This is up 3% on last year. We need to drive change now to improve outcomes through early and targeted engagement, increased contributions where possible, and improved accessibility  so that more people save. 

Groups such as women – often in lower paid, part-time jobs due to childcare costs and responsibilities and the gender pay gap – still lag their male counterparts, as do those with a disability, among others. Women who are single parents face the toughest retirement prospects of all .*

Gender pension gap narrows

I’m delighted though to see the gender pension gap has narrowed to 33%** as more women participate in pension saving. Still lots to do but great to see this moving in the right direction.

Women’s retirement is a particular focus of mine and it’s why I’m so involved in our annual Women and Retirement Report which looks at women’s predicted retirement outcomes and why they’re so much worse than men’s. We’ve been publishing that report for 20 years too, with the next one due out this autumn.

I’ve experienced at first hand what it means to take time out of my career to have a family, work part time, and rely on my mum for childcare. She’s been able to support my family and I don’t know what I’d have done without her. It has, though, meant her own retirement plans changed – and we’re a typical family as we see many grandparents supporting their grandchildren. Today, 37% of retirees are helping children or grandchildren financially, often prioritising their family’s needs above their own.

I’ve got female friends too who have seen their retirement prospects decline when they have a family  . Often their careers stutter and never fully recover. Should they divorce, their retirement outlook typically takes a steep downward turn.  

How can we make a difference

While the 2024 Retirement Report shows that the picture for men and women in retirement is becoming more challenging, there are things that can be done.

The State Pension has become an increasingly important part of many people’s retirement plans thanks to the triple-lock increasing its value over and above inflation. That’s incredibly helpful.

AE 2.0: the game changer

But the real game changer has to be around workplace pensions. Extending auto enrolment to employees from the age of 18 and from the first pound of earnings could increase the future pension pot of a woman who is 18 today and works full-time their whole life until the age of 68 by £46k    in today’s money – a big increase compared to what they would have otherwise.***

This increase comes from an additional four years of saving at the beginning of their working life, as well as an additional £500 in savings in today’s money from the removal of the lower earnings limit. The changes will be most valuable to the young and lower paid, including those who work part-time, most of whom are women. Thanks to AE 2.0 (and there’s no date for it yet admittedly) people like my school-age daughter could have a much better retirement outcome. I look forward to that. 

Read the full report  (PDF, 3MB).

Sources

*/*** Scottish Widows Women and Retirement Report 2023 

** Women age 50-64, since 2008.