One in three people are on course for a prosperous retirement

One in three people could struggle with food and heating bills in retirement because their income isn’t enough to meet their basic needs, new research finds.

Another third will achieve a comfortable lifestyle of financial freedom and luxury, according to the study of potential retirement outcomes for people ages 22 to 65.

More than 40 per cent of those most exposed to hardship in old age still expect to pay rent, according to the Scottish Widows annual report.

The company compared retirement lifestyles within reach for different age groups, ethnicities, genders and types of work, plus underrepresented groups such as people with disabilities and the LGBTQ+ community.

It surveyed more than 5,000 nationally representative adults and about 1,350 people from ethnic minorities in the spring, estimating their likely retirement income based on benchmarks in an influential industry study.

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The standard of living measure of the Pension and Life Course Association is based on various categories of goods and services, such as food and drink, transport, holidays, clothing and social outings.

This showed that an individual needs £12,800 a year for a basic lifestyle, £23,300 for moderate needs and £37,300 for a comfortable old age.

Scroll down to find out what these income levels will get you and what couples need. The PLSA excludes accommodation costs, although Scottish Widows has included this in its own research.

The Scottish Widows survey found that people in their 30s are on their way to some of the best retirement outcomes and are most likely to achieve comfortable lifestyles.

“This reflects the strong current savings behavior, with many taking advantage of auto-enrollment and many others going much further,” the company says.

“If they are able to secure solid investment returns and continued wage growth throughout their careers, they have a very good chance of a good pension.”

But it turned out that young people in their 20s are the least likely to move toward even a minimal retirement lifestyle — the highest rate of any age group.

This reflects lower retirement participation and perhaps a focus on priorities such as housing.

‘It means that more young people have to start saving for retirement and increase their savings rate later in life.

‘But it may prove more difficult for young people to save more later in life, for example if they choose a different work pattern, experience less real wage growth than previous generations, or are faced with unforeseen economic shocks.

“Younger people are likely to be better prepared for retirement if they save sooner rather than later and take the risk to be more confident about the future.”

People approaching retirement in their early 60s are least likely to have a comfortable retirement lifestyle, although they are about as likely as middle-aged people at least a minimum income.

‘A significant proportion are not contributing to their pensions, have become economically inactive or are self-employed, so rely on the wealth they have built up, which is not enough to support a comfortable lifestyle,” says Scottish Widows.

‘This highlights an important point: that younger people may be in a similar position if they choose not to work or not to work until they are 60.

‘However, older generations will benefit more from rising house prices. The extra equity in their homes could be used to help some match the living standards of younger generations.

The Scottish Widows study found that women retire on average with a third less income than men – £19,000 versus £12,000 – reflecting ‘widening inequalities, particularly in the workplace’.

Men are also more likely to be on track for at least a minimal lifestyle — about two-thirds, compared to three-fifths of women. About 40 percent of men are on their way to a comfortable lifestyle compared to 30 percent of women.

“Much of the difference between men and women is caused by lower average wages for women and much more part-time work,” it says.

‘Employment patterns can create challenges for different demographic groups. Women, immigrants and the disabled are disproportionately represented in lower paid and part-time jobs where it is more difficult to accrue sufficient pension.’

Meanwhile, people who are currently contributing to a generous and guaranteed final salary or defined benefit pension are much more likely to be on their way to a comfortable lifestyle – see below.

In contrast, most people who contribute to a defined contribution pension, where employers pay less and where individuals bear the investment risk, have a good chance of achieving at least a minimal lifestyle when they retire.

Pete Glancy, the company’s head of policy, says: “One in three of us will face the harsh realities of retirement where we will struggle to make ends meet.

‘This year the pressure seems to have increased due to rising inflation and further rising interest rates.

The solution must be threefold. We call on the government to end pension poverty by implementing long-term reforms, such as ensuring that automatic enrollment can support those on lower incomes.

“Second, companies need to do more to address the inequalities faced by disadvantaged groups such as women, the disabled and the LGBTQ+ community in the workplace.

“Finally, the financial services industry needs to get better at communicating effectively with diverse groups to build trust and ensure people of all incomes and demographics understand how to effectively save for retirement.”