A new report published by Scottish Widows - the 19th annual Retirement Report - has shed light on the potential retirement challenges faced by different demographics in the UK. The report introduces the National Retirement Forecast (NRF), a comprehensive analysis that provides a detailed examination of the retirement landscape across various age groups, genders, ethnicities, employment statuses and underrepresented communities - including disabled individuals and the LGBTQ+ community.
According to the NRF, a concerning 35% of Brits could potentially struggle with poverty in retirement. This sobering figure highlights the significant challenges faced by a substantial portion of the population. The current economic climate is a key contributing factor, with the report indicating that many people may struggle to afford basic necessities such as food and heating during their retirement years.
The NRF reveals a significant polarisation in retirement prospects, with 36% of the population heading for a comfortable retirement while the remaining 35% are projected to face financial hardship. These disparities are further exacerbated when examining specific demographic groups. For instance, almost half (43%) of those predicted to struggle in retirement expect to still be paying rent. In several parts of the country, rental costs can consume 60-70% of retirees' income, rising to a staggering 130% in London.
The report also highlights the challenges faced by younger generations. Approximately 41% of people currently in their 20s are on track for hardship in retirement, with an average projected retirement income of £10,000 among this group. However, there is some positive news as the NRF indicates that 43% of millennials are on track for a comfortable retirement. This reflects their strong savings behaviours and the benefits of automatic enrolment in workplace pension schemes.
Gender disparities in retirement income are also brought to light by the NRF. On average, women are expected to receive a third less income in retirement compared to men, with projected retirement incomes of £19,000 and £12,000, respectively. Additionally, almost half (49%) of Brits have not checked whether they are entitled to the full state pension, suggesting a lack of awareness and understanding of retirement benefits.
The NRF further emphasises the impact of employment patterns on retirement prospects. Women, ethnic minorities, and disabled individuals are disproportionately represented in lower-paid and part-time jobs, making it more challenging to accumulate sufficient pension savings. Self-employed individuals also face difficulties in saving adequately compared to full-time employees who receive formal incentives.
Living expenses remain a major concern for the majority of Brits, with 75% expressing worry about their financial situation. Against the backdrop of ongoing economic uncertainty, a worrying minority (21%) has resorted to cutting back on essentials, marking an increase from 16.5% in 2022. These financial pressures likely contribute to the challenges individuals face in preparing for retirement.
One of the most alarming findings of the NRF is the particularly concerning outlook for disabled people. Over half (51%) of disabled individuals are projected to face poverty in retirement, with an average annual income of £11,000. This amount represents only 61% of the income predicted for non-disabled individuals. The report also highlights data from disability equality charity Scope, revealing that disabled households require £975 more per month to secure the same standard of living as non-disabled households. This suggests that the retirement income gap for disabled individuals may be even wider than estimated by the NRF.
Scottish Widows' Head of Policy - Pete Glancy - stressed the importance of addressing the inequalities faced by disabled individuals, particularly the additional costs they bear throughout their lives, which make it harder to achieve a comfortable retirement.
Glancy called on employers to take action to resolve disparities in pay and progression and urged the government to advocate for more transparency from businesses, helping disabled individuals avoid the prospect of retiring in poverty.
Louise Rubin, Head of Policy and Campaigns at Scope, echoed these sentiments, emphasising the need for politicians to prioritise addressing the disability employment and pensions gap. Rubin underscores the fact that life costs significantly more for disabled individuals and that planning for retirement becomes a luxury many cannot afford. It is crucial to break the link between poverty and disability and ensure that disabled people have an equal standard of living.
The NRF report serves as a wake-up call for the UK government, businesses and the financial services industry. Scottish Widows urged the government to implement long-term reforms that support those on lower incomes, ensuring that automatic enrolment can effectively address retirement poverty. Additionally, businesses must work towards addressing workplace inequalities faced by disadvantaged groups.
Lastly, the financial services industry must improve its communication efforts to build trust and ensure that individuals across all income levels and demographics understand how to save effectively for retirement.
