Reflections on retirement: key insights from our latest retirement report

The latest National Retirement Forecast

First produced in 2023, our latest National Retirement Forecast paints a concerning picture: many individuals are not on track to achieve a comfortable retirement. 

Despite the benefits of automatic enrolment, which helps most people meet their basic needs, 39% of the population is at risk of falling short of even a modest standard of living in retirement. This equates to approximately 15.3 million people potentially facing financial hardship in their later years.

The forecast also shows that only 30% of the population is on course for what the Pension and Lifetime Savings Association (PLSA) defines as a 'comfortable retirement.' These individuals are typically higher earners with substantial pension savings, additional investments, and homeownership. However, obstacles such as the advice gap, data privacy regulations, and insufficient engagement with pensions continue to impede progress.

The report also emphasises the significant impact of housing costs on retirement outcomes. For instance, many individuals, particularly those in defined contribution (DC) schemes, are likely to experience a considerable decline in their living standards upon retirement. While middle-income earners, especially those in their thirties, are projected to see their income decrease by over 60% when they retire.

The importance of financial independence

Financial independence is a crucial aspect of retirement planning, and our report explores this important area in detail. The report shows that most people feel financially independent, meaning they are free from debt, prepared for emergencies, and able to comfortably manage household expenses. However, a quarter of the population does not feel financially independent, with nearly half doubting they will ever achieve it.

Elsewhere, young adults, individuals with disabilities, renters, and low-income earners are the least likely to feel financially independent. The primary barriers include insufficient savings to cover emergencies, unexpected expenses, or retirement funds, and the inability to save more to enhance financial security. Priorities for achieving financial independence vary, with higher income, homeownership, and debt repayment being key factors.

Our findings indicate that financial independence increases with age and income. Young adults value independence from their friends and family, midlife adults focus on homeownership, and older adults prioritise higher incomes. Lower earners prioritise higher incomes, mid-income groups focus on debt repayment, and higher earners value homeownership.

Are statutory pension savings levels enough?

Looking ahead, it is clear that the current statutory pension savings levels will not be sufficient for many individuals to live comfortably in retirement. And increasing the statutory pension savings levels is not feasible at this time due to financial constraints on households and businesses. Instead, we need to identify and support those most at risk of poor retirement outcomes.

Given this, we propose several policy interventions that could make a significant difference. Developing an equivalent of automatic enrolment for the UK's self-employed workers, expanding social housing, and creating a top-tier pension product that combines the benefits of personal and occupational pensions are among the recommendations. Additionally, establishing one regulator for all types of defined contribution pensions could eliminate confusing rules and ensure consistency.

Let’s look at those recommendations in more detail:

As you can see, our latest Scottish Widows Retirement Report underscores the importance of proactive retirement planning and financial empowerment.

And by addressing the challenges highlighted in our National Retirement Forecast and supporting financial independence, we can help more people achieve a secure and comfortable retirement. 

At Scottish Widows and Lloyds Banking Group we will continue to keep track of the UK’s landscape, and remain absolutely committed to investing in initiatives that enhance financial resilience, and empower individuals to face the future with confidence.