High living costs are pushing retirement further out of reach for UK workers, with a growing number believing they will never be able to afford to stop working, according to new research by financial wellbeing provider Wealth at Work.
The research shows that 45 percent of working adults now say they will never be able to afford to retire, which is a significant increase from 39 percent a year ago and 33 percent in 2023. The concern is most pronounced among workers aged 35–44, where 51 percent voiced this fear.
The results also reveal a significant proportion of employees (26 percent) that feel unsupported by their employer when it comes to understanding pensions.
Just 16 percent turn to their employer for guidance, while 10 percent seek advice from no one at all.
The findings have clear implications for HR and reward professionals regarding workplace pensions engagement, financial education, and long-term savings support.
The study also reveals deep anxieties about retirement readiness as results show that 81 percent are worried that rising costs will leave them less comfortable in retirement due to inadequate pension savings. A similar proportion (80 percent) fear having to work longer to make up the shortfall.
Almost a third (32 percent) plan to delay retirement altogether, which rises to 35 percent among people aged 55 and over.
Financial knowledge gaps
Jonathan Watts-Lay, director at Wealth at Work, said: “Workers are getting increasingly concerned that they’ll never be able to afford to retire, with the research finding this peaks for those aged 35-44. Most of this group will not have benefited from a full working life of automatic enrolment and are less likely to reach retirement with generous defined benefit (or final salary) pensions than some older generations. In fact, pre-auto-enrolment, many in this age group may not have saved into pensions at all, therefore missing a number of years of contributions and growth.”
Watts-Lay emphasised the importance of early engagement, adding: “For people to better prepare for their financial future, it’s vital that they engage with their pensions as early as possible.”
He said that many people don’t realise the significant difference a small increase to their pension savings can make. He gave the example of someone in their 20s, saying that if they saved just 1 percent more each year into a workplace pension it can boost future savings by 25 percent.
“This may not feel affordable but making small changes such as setting a household budget, shopping around and not auto-renewing on things like car insurance, as well as utilising workplace benefits i.e. discount schemes, really can make a huge difference when trying to find that bit of extra cash,” he said.
How much do you need?
For people nearing retirement, creating a financial plan is key, Watts-Lay explained, saying they should start by carefully looking at what pensions, savings and investments they have, and then how much they think they will need.
He acknowledged that this can be difficult to estimate but pointed to the Pensions and Lifetime Savings Association (PLSA), which has recently updated their guidance around this.
“PLSA estimates that despite the concerns we found over retirement affordability, the cost of a minimum retirement living standard for a one-person household has decreased slightly by £1,000 per year to £13,400, while for a two-person household it is £21,600. This is due to the current impact of lower energy prices, although we know that this could change again.
“Moderate standards have increased slightly to £31,700 for a one-person household and £43,900 for a two-person household. Comfortable standards have also risen to £43,900 and £60,600 for two-person households.”
Insufficient funds
If people do find they don’t have enough saved, it may be worth delaying retirement or continuing working part-time if they can, he said.
“Although this may not be a prospect many want to face, it would enable people to make more pension contributions whilst taking advantage of tax relief and employer contributions for longer and ultimately build up their savings for a more prosperous retirement.”
Beyond financial pressures, the research highlights a widespread lack of pension awareness that could hinder better outcomes. For example, 21 percent of workers don’t know their pension is invested. Three in ten are unaware they have a choice of investment funds, which rises to nearly four in ten (38 percent) among people aged 55 and above.
Close to two fifths (39 percent) do not know what their pension is invested in, and a quarter are unaware that, without making a choice, their pension provider will default to a chosen fund.
ESG investments
The research found that more than half (54 percent) of employees have considered aligning their pension investments with their personal values (such as environmental or religious beliefs), only 24 percent have taken action.
Encouragingly, 41 percent say they would increase contributions if they knew their pension was invested in line with their values. This rises to 53 percent among 25–34-year-olds.
Watts-Lay commented: “Pensions may not be the most exciting topic, and the jargon around them can be confusing. However, it’s really important that people are educated about their choices and are able to make informed decisions to make the most of their retirement savings. What is particularly concerning is that almost two-fifths of those approaching retirement (aged 55+) are unaware that they have a choice of investment funds to choose from.
“At this point of their life, people need to start considering how they plan to generate a retirement income (i.e. take it as cash, buy an annuity, go into drawdown or a combination of options) and ensure their pension investments or ‘glide path’ is aligned with this.”
He added: “However, it’s also really interesting that our research indicated that many people would increase their pension contributions if they knew it was invested in funds that aligned with their values and beliefs. In recent years there has been a significant expansion of environmental, social, and governance (ESG) considerations, with people wanting to align their pension investments with their values and beliefs.
“ESG is a broad category, and it means different things to different people. But simply knowing that pensions can be used to make a difference can be a powerful way to switch people on to better engage with their long-term savings.”
Employers making a difference
Watts-Lay said: “For people to achieve better outcomes at retirement, they need support to understand not only their pensions but their general finances including ways to save and invest money, budget and manage debt.
“Many leading employers recognise this and provide financial wellbeing support in the workplace. This could include financial education and guidance programmes, access to savings such as workplace ISAs, pension consolidation services to help people manage their pension savings effectively, as well as access to investment advice. Taking an active approach and supporting employees with the help of reputable firms will make the whole process far more robust and will lead to more positive outcomes for all.”
