The UK faces a retirement crisis with nearly three-quarters of UK defined contribution pension savers feel they are not on track to achieve a reasonable standard of living in retirement, according to BlackRock’s ‘UK Read on Retirement 2024‘ survey.
Half of UK defined contribution pension savers (50%) say they cannot afford to save enough for retirement, while more than half (55%) feel they don’t contribute enough to their workplace pension, 26% concerned they lack emergency money.
More than a third (35%) of UK defined contribution savers identified their biggest concern as not having enough money to retire “with dignity”, with this figure rising to 57% among the youngest.
Three-quarters (76%) of participants are interested in automated ‘rainy day’ savings solutions, with Gen Z (95%) and Millennials (85%) particularly drawn to the flexibility and liquidity it offers.
BlackRock report in outline reveals insights into the generational differences and shared challenges of those saving into UK Defined Contribution (DC) schemes, including the difficulty of staying on track for a comfortable retirement, the importance of promoting better saving habits, and the need for greater engagement with retirement planning.
The survey found that nearly three-quarters (74%) of participants feel they are not on track to achieve a reasonable standard of living in retirement and confidence is at its lowest point since BlackRock began surveying UK DC savers in 2017, with the cost-of-living crisis top of mind for many (52%).
Gavin Lewis, head of BlackRock UK and Ireland institutional client business, said: “As the first generation to save primarily through DC pension schemes approaches retirement, we found that many feel they are not on track to attain a reasonable standard of living in retirement (29%). The next generation shares similar feelings, with 38% concerned they won’t have enough to live the life they want, and 61% concerned about outliving what they have built up.
“This sentiment demonstrates the need for an increase in individual pensions contributions and broader pensions innovation, such as target date funds or Collective Define Contribution schemes, both of which pay an income in retirement. In fact, 52% of those surveyed ranked the certainty of an income as their highest preference for a pension.”
While 80% of participants view pensions as the most effective way to save for retirement, fewer than half (45%) of UK DC savers believe they are contributing enough. Three-quarters (76%) highlight that they would value the flexibility and discipline of automated ‘rainy day’ savings solutions, such as Nest Insight’s ‘sidecar’ concept.
Lewis added: “While Pre-Retirees are more concerned about their retirement future, the younger generations also need help to save now. Nest Insight’s research has shown repeatedly the power of payroll savings in helping people build long- and short-term financial security. With a large proportion of both Gen Z and Millennials having fewer than three months’ savings on which to fall back, building an emergency savings element into auto-enrolment is a ‘win-win’ in this context.”
Retirement readiness is at the bottom of Millennials’ financial concerns (10th out of 10) and very low on Gen Z’s list (9th out of 10), despite 44% of participants responding that they don’t believe the State Pension will be sufficient by the time they retire. The majority of Gen Z participants (57%) expressed a desire to enjoy life now rather than worry about planning for the future, while 70% of Millennials feel unable to plan for the future due to current financial pressures.
Younger generations highlight that they would benefit from education on the power of compounding and the benefits of automating processes, as well as using technology to increase savings in the short, medium and long-term. This is particularly relevant given that 22% of Gen Z participants feel that a scheme’s number one priority should be little or no member engagement.
Those nearing retirement are seeking straightforward information on how much savings they will have and the best ways to manage it. Three-quarters (75%) of Pre-Retirees would value help calculating the income they will need in retirement. Notably, only 11% have a clear understanding of their income-generating options, leaving most feeling uncertain. Against this backdrop, 71% of Pre-Retirees express interest in further education on the retirement income options available, and 87% of Gen X and Pre-Retirees believe DC plan providers should offer guidance for investing pension savings up to and after retirement.
Over three-quarters (76%) of pre-retirees do not have a plan for moving their money out of their workplace pension at retirement, and significant uncertainty remains about how to generate an income. Almost two-thirds (65%) of pre-retirees are concerned about having to create a sustainable retirement income, with 61% worrying they may outlive their savings.
Supported by BlackRock, Nest Insight have conducted a number of workplace savings trials, whereby participants save into emergency savings accounts via payroll deduction, in the ‘sidecar’ trial these savings then rolled over into the individual’s workplace pension alongside their regular auto-enrolment contributions once a savings target was reached.
The BlackRock 2024 UK Read on Retirement report is based on a survey of 1,000 UK DC savers and highlights not only generational differences in retirement readiness, but also similarities – the challenge of staying on track to achieve a comfortable retirement, the importance of encouraging better saving behaviours and the need for greater engagement. The opinions expressed are as of October 2024 and may change as subsequent conditions vary.
