𝓤𝓷𝓲𝓽𝓮𝓭 𝓝𝓮𝔀𝓼

A third of people face pension poverty and that could get worse if fuel inflation runs high and savers are forced to put less away for retirement, an influential industry report warns today,

Scottish Widows’ latest Retirement Report finds 31 per cent of adults – 12.2m people – face pension poverty using measures that compare likely retirement incomes against expenses.

Those who cannot afford a “minimum retirement lifestyle” will struggle to cover basic needs such as food and fuel.

That figure is actually down from 39 per cent in 2025, but fears about what could be around the corner are growing.

Scottish Widows says that simply boosting auto-enrolment contributions would drive pension poverty down dramatically.

Pensioner poverty is typically regarded as a household with annual income that is 60 per cent below the median, after housing costs.

That is roughly £10,000 for an individual or £17,000 for a couple.

The improvement in this year’s figures come as policymakers and industry leaders debate sweeping reforms to the UK pensions system, including proposals to boost automatic pension contributions while simultaneously limiting the tax advantages available through salary sacrifice schemes.

Chancellor Rachel Reeves announced in the Autumn Budget 2025 that the National Insurance (NI) relief on salary sacrifice pension contributions will be capped at £2,000 per year, starting in April 2029. This was immediately regarded as a controversial move.

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Scottish Widows said the improvement in retirement projections had been driven partly by lower short-term energy costs and rising levels of non-pension savings among some households.

More people also expect to own their homes outright by retirement, reducing future housing costs.

Pete Glancy, head of pension policy at Scottish Widows, described the report as “a step in the right direction” but cautioned that the nation’s retirement savings position remained deeply uneven.

“The current state of the nation’s savings is still polarised,” he said. “The factors we can control, like how much we save, can easily be thrown off course by increases in energy and wider living costs.”

Government report to investigate better pensions

The report adds momentum to calls for reform ahead of recommendations expected from the government-backed Pension Commission, which is reviewing how to improve retirement outcomes over coming decades.

Among the proposals backed by Scottish Widows is an increase in minimum auto-enrolment pension contributions from 8 per cent to 12 per cent of earnings. The company estimates such a move could cut pension poverty from 31 per cent to just 13 per cent among defined contribution savers.

Younger workers would see some of the biggest gains.

According to the analysis, raising contributions to 12 per cent on the first £30,000 of salary could add an average £40,000 to retirement savings pots, with workers aged between 22 and 29 potentially building an additional £114,000 by retirement.

Patrick Thomson, head of research at Standard Life, said: “The long-term outlook for saving adequacy remains a serious concern.

“Without action, the retirement income crisis is expected to worsen over the coming decades to a peak in the 2040s as Gen X, the group with some of the lowest levels of retirement savings, enters retirement.

“It is critical that the government sets out a clear plan to improve financial security, particularly for the most vulnerable. Too many people in their late 50s and 60s leave the workforce earlier than planned due to factors such as ill health or caring responsibilities. Supporting people to stay in work for as long as they want or need is key to improving retirement prospects.”

Self-employed need to be brought into auto-enrolment

The report also highlighted significant gaps among self-employed and part-time workers, many of whom remain outside the scope of auto-enrolment altogether.

Around a third of people in each group are projected to face below-minimum living standards in retirement.

Scottish Widows called for an “equivalent of auto-enrolment” for the self-employed, warning that modern working patterns are leaving large sections of the workforce without adequate retirement provision.

“We must ensure that choosing flexibility today — through self-employment or part-time work — doesn’t come at the expense of tomorrow,” Glancy said.

The insurer also urged policymakers to better integrate pensions with other forms of long-term financial planning, including savings, investments and housing wealth, arguing that pensions alone are unlikely to fund the retirement many people expect.

Some in the industry say that policy should recognise that most savers don’t want to examine their pensions constantly, and should be encouraged to look long-term.

Katie Trowsdale, head of multi-asset solutions at Aberdeen, said: “Our research has often found a clear bias among investors toward gold and property—perhaps because they feel more familiar and tangible. But familiarity doesn’t equal safety. Rather than chasing what feels safe, investors may be better served by embracing a strategy designed to weather uncertainty.

“So while we must continue to foster a stronger culture of investing, we also need to recognise that most people don’t want to think about their portfolios every day.”