Less than four in ten households are saving enough for a ‘moderate’ retirement, a new report warns, and some groups are most at risk of falling ‘way behind’
Renters are those least likely to be on track with their pension saving. Just 15.5 per cent currently saving enough for retirement, data from Hargreaves Lansdown reveals.
The retirement barometer also said some 18 per cent of single parents are also failing to put enough away for the future.
Renters and single parents are more likely to face higher living costs, in many cases pushing retirement saving from their priorities list, and are among the 36 per cent not on track for a moderate retirement.
Self-employed people are also lagging when it comes to pension saving, with just 21 per cent on track for a moderate retirement, which we give more detail on below.
Helen Morissey, head of retirement analysis at Hargreaves Lansdown, said: ‘Renters struggle because they are paying higher rent which leaves them with less money left over at the end of the month to get onto the housing ladder.
‘On average, they end the month with just £62. Being able to own your own home is a major plus point when it comes to boosting retirement resilience, as it reduces your later life costs and gives you a valuable asset.’
Shortfall: Hargreaves Lansdown says renters, single parents and self-employed workers are most likely to be behind on their pension saving
Similarly, single parents face having to pay both their costs and those of their children, leaving them with as little as £50 per month to go towards pension saving on average, according to Hargreaves Lansdown.
Morissey added: ‘The self-employed have a different set of challenges to deal with. They are not covered by auto-enrolment and do not receive the all-important employer contribution.
‘In addition, volatile earnings can mean that many are nervous about tying up their money into a pension, which they can’t access until at least 55.’
In comparison to these below average groups, 68 per cent of high earners are on track for a moderate retirement, while 52 per cent of homeowners and 44 per cent of married couples without children are set to save enough for their retirement.
Separate Interactive Investor data from 2024 indicates that as many as 38 per cent of self-employed workers have no pension savings at all.
What is a moderate retirement?
The state pension should provide a solid base for many people’s retirement income but to fully enjoy their later years, they will need extra income on top.
According to benchmark industry figures from the Pension and Lifetime Savings Association, £31,300 per year is needed for an individual to have a ‘moderate’ standard of living in retirement. Due to the cost savings of living together, a couple need £43,100 annually for a moderate retirement.
Among other things, this moderate lifestyle equates to around £55 a week on groceries, £30 a week on food out of the home, £10 a week on takeaways, £100 a month to take others out for a monthly meal, according to the PLSA.
Meanwhile, the PLSA says an individual needs £43,100 per year for a ‘comfortable’ retirement and a couple a combined £59,000 annual income.
Achieving the ‘minimum’ standard requires £14,400 per year for an individual and £22,400 for a couple.
The PLSA estimates don’t take into account income tax, housing costs or care fees. They do include the state pension.
Could a lifetime Isa boost your retirement pot?
With many savers falling short, Hargreaves Lansdown says some people may want to consider saving into a lifetime Isa could help to boost retirement pots.
Lifetime Isas offer a £4,000 annual allowance, with a 25 per cent bonus contribution on anything saved.
In effect, this works the same way as basic rate tax relief on a pension pot, but also offers any income from the account tax-free.
One issue is that you must open a lifetime Isa before the age of 40 and can only pay in up to age 50.
With a pension, full income tax relief is offered on contributions – boosting money paid in by 25 per cent to take it back to the position before basic rate tax – and withdrawals are currently taxed at income rates above the first 25 per cent tax-free.
Those who are employed should always ensure that they pay as much into their work pension scheme as needed to benefit from the maximum employer contributions.
You can save more into your work pension above this, opt for a self-invested personal pension, aka a Sipp, or choose a lifetime Isa.
The lifetime Isa exit charge does mean that savers will lose some of their money if they remove their funds early.
This 25 per cent charge removes both the bonus for paying in and some of funds that come from savers’ own contributions.
Morissey said: ‘Money can also be accessed in tough times, subject to an exit charge. It’s an attractive alternative to a pension for self-employed people paying basic rate tax.
‘Higher rate taxpayers would still be better off with a pension, given tax relief is given at your highest marginal rate.’
There have been calls for the lifetime Isa exit fee to be reduced so only bonus funds are hit.
A saving of £4,000, with £1,000 added by the Government, would face a charge of £1,250 for exiting early.
‘Reducing this charge to 20 per cent would remove this effect and give savers the comfort of knowing they won’t lose any of their own money,’ Morissey said.
Morissey also says Lisa eligibility should be expanded, commenting: ‘At the moment, you can only open a Lisa if you are between the ages of 18 and 39.
‘Allowing people to open and contribute to a Lisa up until the age of 55 would enable more people to build up a decent retirement income – notably those who become self-employed later in life.’
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