Millions of people are still not saving enough into their pension, meaning they will likely have to delay their retirement.
The percentage of people not on track for even a minimum retirement lifestyle has worsened, from 35 per cent to 38 per cent since 2023, equating to an extra 1.2 million people, according to new figures.
A minimum retirement, as defined by the Pensions and Lifetime Savings Association, is £14,400 a year for a single person and means they have £50 to spend on groceries a week and no car.
Scottish Widows’ annual retirement report found there is a growing polarisation between those whose wages have been able to keep up with the cost of living and those whose have not.
Rents for example have increased by 15 per cent between 2022 and 2023, whilst the state pension increased by 8.5 per cent and wages by 6.2 per cent.
It means many are unable to adequately contribute to their retirement fund.
In the survey of over 5,000 adults, most people said they would like retire at the age of 62, but 54 per cent think they will have to work longer than they would like, on average by seven years.
A further 27 per cent don’t feel they will ever be able to retire while just 34 per cent think they are currently preparing adequately for retirement.
A growing number of people are paying for their mortgage or rent into retirement which means they have less disposable income.
There are also concerns the state pension will not be around to benefit them when it comes to retirement.
Currently, 46 per cent of retirees say the state pension provides a significant portion of their income.
Pete Glancy, head of pensions policy at Scottish Widows, said: “The growing gap in retirement outcomes and people’s quality of later life, between those who are currently retired and those who will retire in the future, is of great concern.
“There is still a real reliance on the state pension, and while some will be able to use their private pension pot to give them the flexibility they are looking for in terms of retirement age, it’s only starting to dawn on others that they may end up working for much longer.”
Scottish Widows suggests Labour needs to properly investigate how it can help people save.
It proposes reforms to automatic enrolment including lowering the contribution age, which is currently 22, and introducing an equivalent for self-employed workers.
Additionally, it said there needs to be a “roadmap” to increase contributions from 8 per cent to 12 per cent with higher earners encouraged to pay in 15 per cent.
Glancy added: “It’s the right moment for the Government to take a holistic view on people’s financial resilience throughout life, paying particular attention to those whose retirement outcomes are predicted to be much lower.
“At present only the wealthiest tend to rely on professional support from a qualified financial adviser. As an industry, we need to find a way to give people better support in making good financial decisions at a price more savers are willing and able to pay.”
It comes after the Government has promised to bring in new laws to boost pension pots by more than £11,000 as part of its Pensions Schemes Bill, which it says will support over 15 million people who save in private sector pension schemes to get better outcomes.
It added it wants to encourage a pensions market that encourages consolidation – meaning people combine their pension pots into one.
Paul Leandro, Partner at professional services firm Barnett Waddingham, said: “This research paints a worrying picture for future retirees, and is a stark reminder that we’re yet to defuse the ‘ticking timebomb’ that is the UK’s pension system.
“The recently announced pensions review offers some hope that things will change, but the concern is about timing. Pension inadequacy, whilst on the list, is a secondary priority for the review. The longer the delays, the more the risk that future cohorts of people will not have secure or dignified retirements.”