The number of working people who believe they will never be able to afford to retire is on the rise according to research. It found that due to the impact of the increased cost of living almost half (45%) of workers claim they will never be able to afford to retire which is up from two fifths (39%) twelve months ago, and a third (33%) in 2023.

Those workers aged 35-44 years are the age group most likely to believe they will never be able to afford to retire, with over half of all these workers (51%) expressing this concern.

The majority (81%) of those surveyed are also concerned the increased cost of living means they will be less comfortable in retirement due to a shortfall in pension savings. Moreover, the same amount (80%) say they are concerned they will have to work longer to make up for it. In fact, almost a third (32%) say they will look to delay retirement which is higher (35%) for those approaching retirement aged 55+.

Jonathan Watts-Lay, Director, WEALTH at work, comments; “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.”

He adds; “For people to better prepare for their financial future, it’s vital that they engage with their pensions as early as possible. Many don’t realise the significant difference a small increase to their pension savings can make. For example, someone in their 20s, saving just 1% more each year into a workplace pension can boost future savings by 25%. 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.”

Watts-Lay explains ; “Those who are approaching retirement should work out a financial plan, starting by carefully looking at what pensions, savings and investments they have, and then how much they think they will need. This can be difficult to estimate but the Pensions and Lifetime Savings Association (PLSA) have this month updated their guidance around this. It 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.”

He explains; “If people find what they have saved isn’t going to be enough, it may be worth delaying retirement or continuing working part-time if able. 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.”

As well as the challenges faced due to rising costs, the research also looked at workers’ understanding of pensions. It found that 21% are unaware that their pension is invested, and 30% are unaware that their pension has a choice of investment funds to choose from which increases to 38% for those aged 55+.

Additionally, 39% are unaware of what their pension is invested in and 25% are unaware that if they don’t choose what their pension is invested in, it will automatically be done for them by their pension provider (into the default investment fund). Interestingly, over half of workers (54%) have considered choosing pension investments based on their values and beliefs (such as environmental, social or religious).Yet only a quarter (24%) have done so.

Encouragingly, despite the current cost of living challenges, 41% would consider increasing their contributions if they knew their pension was investing in funds that aligned with their values and beliefs. This increases to over half (53%) of workers aged 25-34. Alongside these findings, the research found that 26% feel unsupported by the workplace to understand their pensions. When asked who they mostly seek pension guidance from, only 16% chose their employer and 10% said no one at all.

Jonathan Watts-Lay, comments; “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 adds; “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.”

Watts-Lay summarises; “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. An increasing number of employers are turning to specialist workplace providers to bring all this support together. 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.”