Business & Technology
Pension poverty warning for 12.2 million as rules change
New research from Scottish Widows found that 12.2 million people remain at risk of not having enough money to cover basic needs in retirement.
Pension experts are now urging workers to carry out a “pension health check” and rethink how much they are saving before it is too late.
The firm’s latest Retirement Report found:
- 31% of UK adults are still at risk of pension poverty
- Around 12.2 million people may not cover basic retirement costs
- Increasing pension contributions could dramatically improve outcomes
Although the figures are slightly better than last year – when 39% were considered at risk – experts warned many households are still dangerously underprepared.
The pension ‘magic number’ experts say matters most
Susan Hope said one of the biggest mistakes people make is not saving enough early enough.
She said: “As a rule of thumb, we suggest saving 15% of your salary to help reach a comfortable retirement.”
That figure includes:
- Personal pension contributions
- Employer contributions
- Tax relief from the Government
Hope said even increasing contributions by an extra 1% or 2% could make a significant difference over time.
Hope said retirement planning often fails because people struggle to visualise what they actually want later life to look like.
She said: “Before diving into spreadsheets and sums, picture your ideal retirement.
“For some, it might be enjoying more time at home, while for others it’s European city breaks or long-haul holidays.”
Experts say creating a realistic picture of retirement can help people feel more motivated to save consistently.
Millions urged to do a ‘pension health check’
Scottish Widows is encouraging people to carry out regular pension “health checks” to understand whether they are on track.
The report found:
- A third of people may not have enough to meet basic retirement living standards
Hope said reviewing pensions regularly can help people:
- Spot savings gaps early
- Adjust retirement plans
- Increase contributions gradually
- Avoid major shocks later in life
She added that even people in their 40s, 50s and 60s can still significantly improve retirement outcomes.
Why tax relief gives pensions a major advantage
Experts also highlighted the tax benefits of pensions compared with other savings products.
When paying into a pension:
- Most workers receive tax relief from the Government
- Investment growth is protected from Capital Gains Tax
Hope said this means pensions can sometimes be more tax-efficient than ISAs for retirement saving.
She added: “The more time your money is invested, the more time it has to grow.”
The emergency savings warning many overlook
Alongside pensions, experts say households should also focus on building separate “side savings” for emergencies.
Hope warned unexpected costs can derail long-term financial plans if people do not have accessible cash savings.
She said: “An emergency fund is something we should all have.
“It helps with those unexpected costs without disrupting wider financial wellbeing.”
Pension poverty may improve – but experts warn risks remain
The Scottish Widows report found retirement prospects improved partly because:
- More people expect to own homes in retirement
- Some households increased non-pension savings
- Energy costs eased temporarily
But experts warned rising bills and global economic uncertainty could quickly reverse that progress.
Pete Glancy said: “The factors we can control, like how much we save, can easily be thrown off course by shifting external factors like increases to energy and general cost of living.”
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Huge pension changes could be coming
The Government’s new Pensions Commission is now reviewing how to improve retirement outcomes across Britain.
Scottish Widows says one of the most important changes would be increasing auto-enrolment pension contributions from:
The company estimates this could:
- Add around £40,000 to retirement pots on average
- Increase savings for some younger workers by more than £114,000
Experts say younger workers would benefit most because their money would have longer to grow.