Only 43 per cent of households have enough pension savings to meet retirement needs, according to the latest Hargreaves Lansdown Savings and Resilience Barometer.
Hargreaves Lansdown says the Barometer has moved from Pension UK’s moderate retirement income standard to a new benchmark based on an adjusted Target Replacement Rate (TRR) with a minimum income floor, offering a clearer picture of what households need to maintain their pre-retirement lifestyle while securing a basic income.
The data shows that higher earners have the biggest pension gaps, averaging £64,800, while lower earners face a gap of £1,250. Meanwhile, around 40 per cent of households in the bottom earnings group are now on track, up from 5.9 per cent under the previous measure, thanks largely to the state pension and auto-enrolment contributions.
Accounting for non-pension assets further improves outcomes, with about 42 per cent of households holding investments outside their pension, boosting retirement readiness. Self-employed households, who typically score lower on pension adequacy, see the largest gains, rising from 36 per cent to 47 per cent, achieving adequacy when non-pension assets are included. Meanwhile, employed households rose from 46 per cent to 54 per cent.
Hargreaves Lansdown head of retirement analysis Helen Morrissey notes that additional incentives, such as Lifetime ISAs, could help self-employed and higher-earning households close their pension gaps, especially if access rules and penalties were adjusted.
Morrissey says: “We’ve got a mountain to climb when it comes to pension adequacy, with the latest data from HL’s Savings and Resilience Barometer showing just 43 per cent of households are on track for an adequate retirement income. It’s a rosier picture than it would have been if we’d used the previous measure, Pension UK’s moderate retirement income standard, but it’s clear the gaps continue to loom large. What’s particularly troubling is the shortfall in the retirement savings of higher earning households.
“By contrast, the picture for lower earners is much improved. This is because the state pension and auto-enrolment minimum contributions will go a long way towards helping them replace a large proportion of their pre-retirement income that will help them maintain their lifestyle.
“It’s an important issue, as the government looks more closely at adequacy in the pension system. Increasing auto-enrolment minimum contributions would undoubtedly help higher earners to bridge the gap to pension adequacy, but is it fair to expect lower earners to also accept the hike when they may already be struggling in the here and now and already be close to achieving adequacy? More thought needs to be given to how to incentivise higher earners to contribute more.”