Checking your workplace pension can trigger confusion, anxiety or even dread, if you check it at all. One in eight of us never do. Few of those who do regularly take stock of their pension savings are left feeling comforted about their future prospects. Our previous research exploring how people feel about their retirement found that 3 in 5 of us think we will need to work years past retirement age, and over half think we will never be able to afford to retire.
People don’t feel they are saving enough to live with dignity in older age, and things are not expected to get better. Government projections show pension incomes declining over the next twenty years, and more and more people are renting in later life, adding extra costs to shrinking budgets. With 6 in 10 employees working for organisations offering the statutory minimum pension contribution rate of 3 per cent to workers, it’s vital that employers consider whether the pension they offer will help their employees live a decent life in retirement. The Living Pension offers a useful benchmark for employers who want to step up and do the right thing.
The Living Pension
The Living Pension is an independently calculated savings target, based on the real cost of living, designed to build a pension pot that will provide enough income to achieve a decent standard of living in retirement when combined with a full State Pension. It means workers can look forward to a retirement with security and dignity. The Living Pension savings target is based on a yearly contribution of 12 per cent of all earnings to an employee's pension pot, or £2,950 of savings in 2024/25, with no more than 5 per cent coming from the employee.
Our latest research explores how living on a retirement income which is less than what is needed for a decent standard of living impacts pensioners. The key findings highlighted below point to the benefits that providing a Living Pension could have on financial resilience, health, and people’s ability to afford the things that make life enjoyable in older age.
Struggling to stay afloat
More than half of those on a low pension struggle to keep up with basic bills or credit commitments. 1 in 3 depend on money from sources such as benefits or money from friends, family or a partner to make ends meet.
Even for those managing to keep up, life’s little emergencies – like a broken boiler or a washing machine – could cause huge difficulties. 1 in 5 couldn’t afford an unexpected £200 cost. 2 in 5 say they are struggling more now than before they retired.
Take Sheila, a former air hostess in her 80s who survives on the State Pension. She told us that she hasn’t turned her heating on in three years and worries every time something like the fridge breaks because she knows she can’t afford to replace it.
Being fairly well off in your working life doesn’t necessarily protect you from struggling to get by in retirement either. 2 in 5 pensioners on a low income thought of themselves as earning a middle or higher wage in their working lives.
The financial strain is taking a toll on wellbeing, with 26% saying their income makes them more anxious and 25% reporting it has worsened their sleep.
Some groups are hit harder
Pensioners who rent their homes, live alone or have a long-term health condition are more likely to be struggling. 1 in 4 renters and 1 in 5 people with a health condition on a low pension struggled to eat regular meals, heat their homes, had fallen behind with their bills or housing costs, or taken out a pay-day loan to cover essentials in the last year.
People who live alone or have a health condition are also more likely to be in debt than people cohabiting or people who don’t have a health condition.
No “golden years”
Most people would like to do more than scrape by in retirement. Some might have plans to start a passion project, take holidays, or offer financial support to children or grandchildren. But for people on a low pension, retirement is far from the “golden years” they might have hoped for.
Nearly half of pensioners have reduced spending on entertainment and hobbies since retiring, and 2 in 5 have reduced spending on gifts and donations. A quarter can rarely, or never, afford the non-essential things they would like to buy.
Employers can ensure their workers have enough to retire with dignity
Over 80 per cent of workers with a Defined Contribution pension are not saving enough each year to achieve a Living Pension pot. The Government’s Pension Commission will help reshape the long-term state of the pension system, but employers don’t have to wait.
By accrediting as a Living Pension employer, businesses can give their workers the security of knowing they’ll be able to thrive, not just survive, in retirement.