Nearly a third of people under the age of 60 could be forced to retire without being able to afford the basics, a new study has found.
Research by the Fabian Society found that people in Generation Z are particularly at risk of falling below a “minimum retirement living standard” when they stop working because of inadequate pension savings.
This standard – set annually by Pensions UK – represents public perceptions of the minimum needed for an acceptable quality of life. It currently stands at £13,900 per year for a single person and £22,500 per year for a two-person household, excluding housing costs.
This is above the full new state pension, which for the 2026-27 tax year is £241.30 a week, or £12,547 per year.
The Fabian Society – a centre-left think-tank affiliated with the Labour Party – carried out research on the future of the pensions system and what people expect to receive from it in their retirement. The research was sponsored by Age UK, the Trades Union Congress (TUC) and Dartmouth Street Trust, a charity.
The report – exclusively shared with The i Paper – found that 31 per cent of today’s 22- to 60-year-olds could fall below a minimum retirement living standard, based on their pension savings to date.
Respondents were asked to use a pensions calculator to estimate their projected retirement income, based on their retirement plans and savings to date. Industry standard assumptions were used to calculate the income.
Gen Z – people born between 1997 and 2012 – is set to be particularly hard-pressed in retirement, with 35 per cent not reaching the minimum retirement living standard, according to the study.
The Fabian Society said the trend reflected a number of factors including barriers to accessing the labour market, slow wage growth, student debt and a shift from “defined benefit” pension schemes to less generous “defined contribution” schemes.
The study involved a representative survey by the polling company, Survation, of 4,000 UK adults, focus groups, and the think-tank’s own financial modelling.
Polling found that nearly 48 per cent of today’s under-45s think they will be worse off in retirement than current pensioners.
Should the pensions triple lock be overhauled?
When it comes to the future of the pensions system, there appears to be some appetite for changing the triple lock policy, whereby the state pension increases each year in line with the highest of earnings growth, inflation or 2.5 per cent.
The policy has ended up being much more expensive than it was expected to be when it was introduced by Conservative chancellor George Osborne in 2011, with the Office for Budget Responsibility (OBR) forecasting that by 2030 it will cost £15.5bn a year – three times its original estimate.
According to the poll, 55 per cent think the Government should replace the triple lock with a different mechanism. However, there is a stark split in views between generations. By a majority of two to one, Gen Z and millennials want to replace the triple lock, while baby boomers and the “silent generation” (those born between 1928 and 1945) back keeping it by two to one.
On plans to increase the state pension age, which is due to rise to 67 by 2028 and to 68 by 2044-46, there was little support for accelerating the increase.
Sixty-four per cent would prefer planned state pension age increases to slow or stop entirely. Only a minority (14 per cent) think it should go up faster than currently planned.
With the Treasury likely to be considering tax changes to pensions in the run-up to next month’s Budget, there was limited appetite for reform.
Under current rules, most people can withdraw up to a quarter of their private pension tax-free, up to £268,275.
Fewer than half (44 per cent) would support reducing pension income tax relief, with just 19 per cent thinking pensions should be taxed in the same way as other forms of income.
However, there was more support for reducing tax relief on contributions for higher earners. Currently, if you pay into a pension, you get relief at whatever income tax rate you pay, meaning those who pay the higher and additional rate receive more relief.
Every pensioner should be able to afford the basics
Seventy-two per cent support reducing higher tax relief on pension contributions for higher earners.
Seven in ten said the Government should ensure every pensioner can afford the basics for an acceptable quality of life, and there was also strong support for expanding automatic pension enrolment, with 79 per cent backing this for low-income workers and 77 per cent believing it should be extended to the self-employed.
The current earnings trigger for automatic enrolment is £10,000 annually and £768 every four weeks.
The Fabian Society said its research showed there is a “narrow but credible route to consensus” on pensions reform, so long as reforms protect those who need it and build “confidence among the public in these protections”.
“People are unlikely to accept changes they believe threaten their dignity and security in retirement – whether that threat is real or perceived,” it said.
Paul Nowak, the general secretary of the TUC, said “We ignore the effects of a rising state pension age. Almost two-thirds want increases to slow or stop, with those on the lowest incomes the most worried about the impact of further hikes.”
He added that the Pensions Commission – an independent body set up to review the regime for private pensions – provides “a vital opportunity for the Government to listen to workers about their concerns for the future”.
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