An alarming number of Scots not saving enough into pensions

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The latest Scottish Widows’ annual Retirement Report spotlights the people facing the most serious retirement challenges – with major concerns identified for Gen Z, low-to-middle-income earners, and self-employed workers.

The research found that two fifths of people in the UK are not on track for a “minimum” lifestyle in retirement, worsening from 35 per cent in 2023.

Although pension saving levels have increased in the last 12 months, with projected retirement income rising to £17,2000 from £15,500, they have failed to keep pace with the increased cost of living, the report warns. The Pension and Lifetime Savings Association estimates that, excluding housing costs, a minimum retirement lifestyle would cost a single person outside London £14,800 a year in today’s money, leaving many retirees with minimal funds after basic living costs.

In Scotland, 35 per cent of people know they aren’t saving enough for retirement, and 21 per cent aren’t saving at all. One in four Scots do not feel financially independent and, of those, 46 per cent don’t think they ever will achieve that goal.

Some 59 per cent admit to having done “little to no research” on how much they might need for retirement. Meanwhile, 44 per cent are not confident in managing their savings for retirement. Of those, 37 per cent aren’t sure how pensions work, and 30 per cent are not sure how much they should be saving.

Certain key groups across the UK face even worse outcomes, the report said:

◆ Generation Z A quarter of respondents in their 20s told Scottish Widows that they prioritise saving for emergency expenses, while 13 per cent aren’t able to save at all. Instead, their main savings targets are emergency funds, house deposits, and holidays.

◆ Squeezed low-to-middle-income earners Pension auto-enrolment has resulted in millions of people saving for the future, but the default contribution rate leaves minimum savers vulnerable. Squeezed low-to-middle-income earners –those in their 30s on an income of between £20,000 and £35,000 – are mostly likely (46 per cent) to contribute the minimum8 per cent.

◆ Self-employed The UK’s 4.39 million self-employed workers are still excluded from automatic pension enrolment, leaving many with poor retirement outcomes. More than half are at risk of not being able to cover their basic needs in retirement, and just 25 per cent are on track for a minimum retirement lifestyle. Two in five self-employed workers believe they aren’t saving enough for retirement, with 23 per cent not saving anything at all.

Pete Glancy, head of pensions policy at Scottish Widows, says: “The big challenge is helping people make the most of what they have. We can see from the data that a third of people in Scotland aren’t saving enough for retirement and more than one in five are not saving anything at all for when they stop working.

“But there’s still confusion and a lack of confidence among workers about pension saving – like how much do they have, what do they need, and is it enough based on their individual circumstances.

“Cracking that issue means helping people become more engaged as early as possible with what they can do now to get a clearer picture of their financial future. This will enable more people to feel more empowered to make informed decisions and start taking these steps now, which could make a real difference.”

Pete continues: “The second phase of the government’s Pensions Review needs to take a holistic view on people’s life milestones, considering wide-ranging financial goals.

“The priority areas that must be addressed urgently are auto-enrolment, self-employed contribution rates and housing – considering both home ownership and affordable housing – to help prevent millions of people from struggling to make ends meet in retirement.”

Andy Bolden, financial planning director at 7IM, says that whatever income bracket someone is in, the cost of living is still front and centre in many people’s psyche. He adds that it therefore shouldn’t be surprising that many aren’t saving enough for retirement, or not saving at all.

That said, Andy advises: “The earlier you start saving for later life, the easier it is, because you can start with lower amounts and benefit from long-term compounded growth.

“In my view, workplace pensions have been both a help and a hindrance. Mandated pension saving for both employees and their firms will certainly help build the retirement pots of many workers, but there is not enough education alongside this – starting in schools and then in the workplace – to help people understand what the realistic outcomes will be.

“With many schemes getting only statutory minimum contributions, and employees tending to move workplaces more now than ever before, often failing to take their pension fund with them, there is a growing ‘expectation gap’ between what benefit is anticipated and what is likely. Self-employed individuals, of course, have no access to subsidised pension schemes.”