Millions of Brits face a retirement shortfall as experts warn of widening pension gap – Daily Business

Millions of workers in the UK head towards retirement with little savings that fail to match rising good prices, housing costs and increasing age span. A recent 2025 Retirement Report by Scottish Widows’ estimates 15.3 million people are at risk of retirement poverty, a number up by 1.6 million in two years. 

Nearly two fifths of adults i.e. 39% are not on track even for a minimum standard of living in later life. And the government analysis of future pension incomes reaches a similar view, with large numbers undersaving when measured against the Pensions and Lifetime Savings Association (PLSA’s) Retirement Living Standards. This shortfall now affects not just low income groups but also broad sections of the workforce.

Let’s further explore, how large is this retirement funding gap, why does it keep widening, and what would help close it before more households reach pension age with little income?

At the same time, the UK state pension is ranked as the least generous in the G7. Retirees receive roughly 22 per cent of average earnings from the state pension, compared with 76 per cent in Italy and 58 per cent in France. Workplace and private pensions therefore carry much more of the burden in the UK than in many peer economies.

How large is the retirement gap?

The PLSA has set a widely used benchmark for retirees. Updated Retirement Living Standards place the minimum lifestyle outside London at £14,400 a year for a single person and £22,400 for a couple. Moderate sits at £31,300 for a single person and £43,100 for a couple, with comfortable at £43,100 and £59,000.

Average retirement incomes often fall short of these figures. Surveys and official data suggest typical single pensioner incomes sit closer to the lower end of this range once housing and care costs enter the picture. Women, carers and long-term renters frequently sit furthest from these benchmarks. The projected retirement incomes are rising in cash terms, yet the share of people who fall below the minimum standard still grows.

Why the pension gap is widening

Several factors come into the picture.

Inflation and housing costs leave little room for long-term saving. ONS data shows disposable household income is under strain, especially for younger workers and mortgage holders. Retirees also feel the squeeze as basic budgets rise faster than income. Updated PLSA figures reflect this pressure, with higher minimum and moderate standards across the board compared with earlier years.

While auto-enrolment brought millions into workplace pensions and increased contributions to nine in ten eligible workers. Yet default contributions remain modest. Department of Work and Pensions (DWP) surveys suggest many savers contribute around 8% of earnings, while comfortable living standards require higher combined contributions over a full career.

Self-employed workers face a tougher uphill battle. They sit outside auto-enrolment and often report irregular or zero pension savings, so the risk of under-saving runs higher for this group even when non-pension assets enter the picture.

The shift from defined benefit to defined contribution schemes adds another layer. Older retirees frequently draw income from guaranteed schemes layered on top of the state pension. Many in their 30s, 40s and early 50s rely instead on pots whose eventual size depends on regular saving and investment returns, with more exposure to market swings and gaps in contributions.

Why this gap matters for households and the wider economy

Survey evidence suggests awareness of these pressures is rising, yet confidence about resolvement in the pension gap keeps declining. UK Retirement Confidence Index records a score of 4.2 out of 10, down from 4.6 in 2024 and 6.9 in 2023. Only around a quarter of adults feel confident about maintaining a decent standard of living throughout retirement.

Under-saving does not only affect households but also society and economy. A widening retirement gap increases risks in later-life poverty, greater reliance on means-tested support, lower consumer spending by older households and more pressure on health and social care systems. These trends also shape labour markets, as more people expect to work for longer simply to protect their standard of living.

Closing the gap: policy, industry and personal steps

Possible responses split across policy, industry and individual action.

Policy discussions already focus on higher auto-enrolment contributions over time, earlier entry into schemes and options for self-employed workers such as default contributions through tax returns or digital platforms. The revived Pensions Commission will examine coverage gaps and adequacy for under-pensioned groups including carers, renters and those in low-paid or insecure work.

Providers and advisers also hold part of the answer. Wider use of pensions dashboards and open finance tools should give savers a single view of state pension, workplace schemes and personal plans, with clear comparison against PLSA standards. Better communication around realistic income ranges, not only pension pot sizes, helps people judge whether plans align with desired lifestyles.

For individuals, simple steps still make a difference over time. Checking a state pension forecast on GOV.UK, reviewing contribution levels when pay rises arrive and stress-testing drawdown plans against realistic life expectancy all support more resilient outcomes. Regular reviews at key ages, or after major life events, reduce the risk of drifting into a shortfall which only becomes visible close to retirement.

Many households also turn to regulated advice once pension, housing and inheritance decisions intersect. Chartered Financial Planners such as Partridge Muir & Warren offer trusted guidance and resources on retirement and long-term financial planning, helping individuals make informed decisions for a more secure future.

A narrowing window for action

Millions of workers move through their careers with pension saving which trails behind higher living costs, modest state support and longer life expectancy. The shortfall will need to be addressed with incremental increases in contributions, better coverage for those outside standard employment, clearer communication and wider access to guidance and advice all shift outcomes over time. 

For policy-makers, providers and households, the next few years look critical. Decisions on saving, working life and retirement age will now shape whether millions move into later life with only a basic income or enjoy a retirement which feels closer to the standards many still expect.