Millions face a massive drop in income on retirement

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Almost 11 million savers are facing an impoverished retirement  because they are not putting enough money in to a pension, according to new figures from the Department for Work and Pensions.

These ‘under-savers’ are expected to have pension incomes below the target levels suggested by the Pensions Commission in 2004.

Minister for Pensions, Steve Webb said: “This is a very large group of people who will face a big drop in their living standards on retirement if they do not take action now.

“This is not just a problem for those on lower wages – those on high incomes are just as much at risk of having a lower standard of living in retirement if they do not take this seriously.

“We have to make it easy for people to save, in confidence, knowing that they are putting enough away to have a comfortable retirement.

“Our reforms to the state pension and the start of automatic enrolment into workplace pensions will help people do this.

“A simple flat-rate state pension above the basic level of the means test will bring much needed clarity and simplicity to the pension system.

“It will provide the foundation needed to support automatic enrolment into workplace pensions, helping to ensure people can save for their retirement with confidence.”

The table gives an idea of how many people aged 22 to state retirement age without enough pension savings to fund a comfortable retirement:

Target replacement rate80%70%67%60%50%All
Income bracketUnder £12,000£12,000 –


£22,100 – £31,600£31,600 – £50,500Over £50,500All
Total individuals (millions)
Number with income below target (millions)
Percentage with income below target11%29%39%39%47%38%

Replacement rate is the amount of income in retirement as a percentage of income before retirement. So, someone earning £50,000 before retirement can expect a pension income of 60% or a drop to £30,000.

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