Savers are now facing a five-year gap between their dream retirement age and the reality of when they will be able to give up work, a new report reveals.
Workers want to be able to retire at age 62 on average, but instead they think they will only be able to retire when they are 67, research by pension provider Standard Life reveals.
This is higher than the current state pension age at 66, though it will rise to 67 from 2026.
While the age people want to retire has stayed the same, the age they think they will be able to has climbed by one year from 66 in 2024.
It comes as inflation and housing costs both continue to creep upwards, putting pressure on people’s ability to save for retirement.
A grim economic outlook is also hitting savers’ confidence and fuelling uncertainty about the future of the state pension.
We dig into what is impacting people’s retirement age across the country – and explain the tricks you can use to trim the gap.
The retirement expectation gap is at its worst in the north east, Standard Life says
Families in north east face highest retirement gap
While the retirement gap is almost five years, there’s a stark difference across the UK.
Savers in the north east face the largest retirement gap, with 5.9 years between people’s dream retirement age and when they actually think they will be able to stop working.
It’s also high in the east of England, the south east, and Yorkshire and the Humber, which all have a 5.3-year retirement gap.
Greater London is the only place in the country where the retirement gap is lower than four years, likely due to higher wages which boost pension contributions from both employee and employer.
In the north west it is 4.3 years. In the south west and the West Midlands it’s 4.7, while in Wales and Scotland the gap is 4.9 years.
Catherine Foot, director of the Standard Life Centre for the Future of Retirement, says: ‘The fact that people face a growing gap between their retirement hopes and expectations reflects the financial pressures and uncertainties many households face.
‘Plus, there are some clear variations depending on where you live, your level of income, the amount of pension savings you have, and whether or not you own your own home.’
Renting? Wait an extra six years to retire
Those who are still renting want to retire at age 62.9, but think they will actually be able to retire at age 69, according to Standard Life – some 6.1 years later.
Tenants will still have to pay soaring rental costs into their later years and retirement which means they will need a bigger pension pot to fund the same standard of life as someone who owns their home outright. This means they may need to work for longer.
The Retirement Living Standards from the Pension and Lifetime Savings Association estimate the average amount needed for different levels of lifestyle in retirement, but these figures exclude housing costs.
For a basic retirement it’s £13,400 a year, for a moderate standard of living you’ll need £31,700 and to be ‘comfortable’ you need £43,900. This assumes a single-person household.
Renters will need perhaps tens of thousands of pounds more every year to fund their private accommodation. The average monthly rental payment across the country is some £1,348, according to official Office for National Statistics figures.
Those who own their own home but still have a mortgage want to retire at 62.2 but think they will retire at 67.4 – a smaller 5.2-year gap.
Costs to consider: Renters do not think they will retire until age 69, Standard Life says
It’s uncommon to take a large mortgage into retirement. Lenders often won’t agree to loan terms that will take the borrower past working age, with some setting the bar as low as age 70.
Even if they start retirement with a mortgage, households will usually have lower repayments as they are approaching the end of the loan, and paying it off will drastically reduce their outgoings.
Those who own their own home outright have the smallest retirement gap – just 3 .4 years. They would like to retire at age 62 but think they will be able to at age 64.4.
Personal pension trumps gold-plated DB schemes
Savers who have a personal pension such as a self-invested personal pension (Sipp) have the lowest retirement gap, even compared to those who saved into gold-plated defined benefit schemes.
Those with personal pensions want to retire at age 61.8 but instead believe they can retire at age 63.9 – a low 2.1-year gap between dream and reality.
People with lucrative DB pensions, which provide a guaranteed income for the rest of your life based on salary and service, have a 2.5-year gap, from age 62 to 64.5.
Savers with a defined contribution pension – the most common type, where you and your employer contribute money to a pot which is then invested – have a 4.7-year retirement gap.
They want to retire at age 62.2 but think they will actually retire at 66.9.
Unsurprisingly, the retirement gap is worse for those with no pension. These individuals have a 6.5-year expectation gap – from age 62.6 to 69.1.
These households will have to rely on the state pension, currently a maximum of £230.25 per week, for their necessities if they do not start saving into a pension.
What can you do to boost your pension?
Preparing for retirement is one of the easiest ways you can close the gap and retire closer to your dream age.
This may include speaking to a financial planner or thinking about how best to use your pension savings.
Standard Life says savers earning less than £30,000 a year who have done no planning want to retire at age 63.9, on average, but they think they will retire at 72.
However, those earning the same salary who have done a great deal of planning want to retire at 63.1 and think they will actually retire at age 67.8. That’s more than four years earlier than those who have done no planning, despite no income difference.
This trend is the same across all salary brackets – the more savers plan for their retirement, the earlier they think they will be able to retire.
The report also shows that the more you earn, the earlier you think you will be able to retire. For example, there is just a 0.9-year gap between the dream and expected retirement age for those earning more than £100,000 who have done a great deal of planning.
This bracket wants to retire at age 59.4 but think they will at age 60.3 – less than one year more than intended.
It’s in stark contrast to the 8.1-year gap between the dream and expected retirement age of those earning under £30,000 who haven’t done any planning.
So the simplest way to slash your retirement gap is to plan.
Hiking your monthly contributions early in your pension saving means you will have a larger pension pot at your retirement age. This means you can either enjoy a nicer quality of life in your later years, or retire earlier than you expect.
Those who contribute the minimum amount to their workplace of 5 per cent of their salary and a 3 per cent employer contribution will have a pension pot of £201,000 at 67. This assumes 3.5 per cent salary growth, 5 per cent investment growth and 2 per cent inflation.
However, those who increase their contributions to 7 per cent, and then get a 3 per cent contribution by their employer will have a £252,000 pension pot – £51,000 extra.
Foot warns the minimum 5 per percent contributions, with 3 per cent from an employer is not enough to build a healthy pension pot.
Some employers may offer to pay more than 3 per cent, so it is worth investigating what is available.
She says: ‘Auto-enrolment has brought millions of people into regular workplace pension saving, but it’s clear that average rates of saving are too low to give most people a decent income in retirement.
‘With the Pensions Commission now revived, there is an opportunity to deliver even bolder action – building on the groundwork of auto-enrolment to tackle pension adequacy, in the context of longer working lives and the ongoing State Pension age review, to help people get one step closer to achieving their retirement aspirations.
‘However, it isn’t only the pensions system that needs to adapt. Many people feel unable to continue working into their late 60s and beyond, so careers and workplaces must evolve if longer working lives are to be realistic and sustainable.’
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