Pension saving hits new low as 'unrealistic expectations' persist

The reality of what people will receive as a pension income is falling far below their expectations, as fewer than half of people who should and could save for retirement are doing so.

The eighth Scottish Widows annual UK pensions report, which surveyed 5,000 people, shows there is a stark difference between the income people expect to receive in retirement and the reality, despite pension savings falling to an all-time low.

Fewer than half, 46%, of people are making enough provision for retirement, which is an all-time low for the survey. The figure fell from 51% last year – 7% on the Scottish Widows Pensions Index – and the drop is partly blamed on reduced expectations that defined benefit (DB) schemes will deliver as planned.

DB schemes are generous workplace pensions that pay out a set income at retirement based on a multiple of years worked at the company and a proportion of the employee’s salary at retirement. These pensions are costly for employers, and many have tweaked the conditions on the schemes to make them less generous.

Confidence that DB schemes will deliver as planned has fallen from 45% to 38%.

For those not relying on a DB pension schemes, the percentage of income they are saving has also fallen to 8.9% from 9.3%, although it is still well above levels seen eight years ago.

The number of people saving nothing for retirement has increased 2% to 22% since last year.

Mind the gap

As DB pensions fall into decline, there is concern that more people will be left short in retirement. But there are other gaps in savings that need to be addressed.

The gender gap is increasing when it comes to pensions. A total of 49% of men are saving adequately for retirement compared with 42% of women. Scottish Widows reported a closing of the gender gap last year, which has now been reversed.

The report said: ‘The biggest contributor to the sharp fall in the Pensions Index is the reduced number of people relying mainly on a defined benefit scheme for their retirement income.

‘The second major factor is lower retirement savings by women. This is particularly worrying given the improvement we recorded last year, which now appears to have reversed.’

There is also a generational gap appearing in pension savings, with 54% of over-50s saving adequately compared with 42% of 30- to 54-year-olds.