The state of British pensions has been likened to a ticking time bomb, with many anticipating a crisis. But there is still much you can do to protect yourself and grow your retirement fund.
What’s Behind the Crisis?
The crisis has been coming on for some time: Most Brits are living longer and have not been putting away enough funds for retirement. In some cases, people are accessing their funds early, diminishing their pensions before they reach retirement age. With all of these factors, it no surprise than many retirees experience a shortfall.
Having millions unable to retire comfortably on their savings means people need to spend longer in the workforce.
There are only around 1.2 million retired Brits under 65, a decrease of 400 000 since 2011. There are currently over 10 million over 65s who are still working, compared only 434 000 a decade ago1.
Women have been the worst affected, with a pension age increase and as well as a persistent gender pay gap.
6 Tips to Avoid Pension Shortfalls
Don’t Delay Staring A Savings Fund
Saving can be difficult, especially if you’re already struggling to make ends meet. But pensions are practical necessities that protect you once you’ve retired. Saving diligently could leave you living well in your golden years but skimping on your funds could see you living on the breadline.
The sooner you start saving, the better. You’ll be able to save more with lower monthly contributions. But if you delay in starting a pension, your monthly contributions will only become steeper as you age.
Know how much you need to save
The balance you need in your pension fund will depend on your age, salary and lifestyle.
Make use of a pension calculator to estimate the amount you need to save, based on your current age, your savings balance, when you plan on retiring and the amount you need to live off annually after retirement.
Contribute to your fund regularly
Don’t underestimate the amount you need to save for your retirement. You will probably need around 70% of your salary to be comfortable after you retire, so you may want to set aside approximately 15% of your earnings.
Save the most that you can afford regularly and put any windfalls towards your pension savings as lump sums.
Make sure you’re also getting other benefits to increase your pension pot. You may be able to increase how much you get in auto-enrolment employer contributions. Employers are obliged to pay 2%, but some offer contribution matching, where adding more to your monthly contributions will see your employer increasing their deposits.
Track down old pension pots
These days, most employees will take up jobs at several different employers throughout their careers. This can lead to several workplace pensions from previous employers. It’s best to keep track of these pensions and monitor how well they’re doing. Over time, high fees can deplete your pension pot, so it’s best to be on top of your paperwork.
If you’re unsure where to start, the government’s Pension Tracing Service2 can assist you in tracking down past pensions, or you can reach out to your previous employers directly.
Pull all your pensions into one fund
Once you’ve located all your old pensions, you have a few options, including transferring them into one fund. This can make managing your pension easier and let you see if your savings are on track at a glance. It will also reduce the fees you pay on each pension pot.
Plan beyond your state pension
It’s unlikely that you will be able to use your state pension until your late sixties, as the pension age is likely to increase to 67 between 2026 and 2028. If you plan to retire before then, you’ll need a private fund.
Eligibility for the full state pension will depend on your National Insurance Contributions, which will have to be paid up in for full for at least 35 years. And even then, you can only expect to receive around £8,296 a year after your retirement – which could leave you having to make some changes to lower your cost of living.
But on the other hand
If you save a private pension fund for your retirement, you can use this to supplement the income gained from your state pension. This fund may even allow you to retire earlier.
Why is there a pension crisis?
The UK has a low level of pension coverage. This is partly because the state retirement age was increased to 67 in 2026, which will affect many people who are not on track with saving for their future.
Moreover, lower-income households may find it difficult to save enough money for their pensions as they have less disposable income than richer ones – this could be due to rising living expenses and an increase in part-time work contracts without guaranteed hours.
How to avoid a pensions crisis and make sure you've saved enough for retirement?
If you’re not already saving, start now. It’s never too late to save more and improve your retirement prospects.
You can also see what tax reliefs are available for pensions contributions and look into whether annuities could work for you by speaking to an independent financial adviser who specialises in this area of expertise.
In the meantime, it might be worth considering a drawdown plan that usually involves withdrawing money from your pension pot while living rather than buying an annuity outright – but make sure you fully understand the consequences before making any decisions about how to manage your future income!
Does the UK pension crisis affect me?
If you’re yet to retire, the UK pension crisis may not be a direct concern for now. Once you do reach retirement age, though – it turns into an issue!
The future of pensions is uncertain, and we need your help to make sure everyone gets the benefits they deserve.
Are young people heading towards a pension crisis?
You could argue that young people are not heading towards a pension crisis. A state pension is an adequate form of retirement income. However, it’s worth noting that you need to have paid enough National Insurance Contributions before being eligible for the fullest benefits.
The UK Pensions system may have an uncertain future, but you can guard your future by saving into a pension fund. This will protect your income after retirement.
And it’s not all doom and gloom. Even though the UK’s population is ageing and the government is struggling to regulate the pension age, new laws such as the Auto Enrolment scheme and tax relief programmes are making it even easier to save a private pension.