Marvin OnumonuOnly 43% of households have enough pension savings, according to the latest Hargreaves Lansdown (HL) Savings and Resilience Barometer.
The results showed the highest earning households have the largest pension adequacy gap at £64,800.
The lowest earners have a gap of £1,250.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “We’ve got a mountain to climb when it comes to pension adequacy, with the latest data from HL’s Savings and Resilience Barometer showing just 43% of households are on track for an adequate retirement income.
“What’s particularly troubling is the shortfall in the retirement savings of higher earning households.”
“It’s a gap that was more hidden by the use of pounds and pence measures adopted by Pension UK which assess households on their ability to hit a specific target income regardless of what their pre-retirement lifestyle has been.
“Going down this route saw 51.8% of those in the top 20% of earners reaching the level needed for a moderate income in retirement.”
She added: “Adopting a new approach, using a target replacement rate with a minimum income floor gives a clearer picture of what people need to maintain their lifestyle in retirement – without falling below the basic minimum.”
“The change sees this drop to around 40% in a clear sign that higher earners are saving, but nowhere near enough.”
The Barometer estimated that the highest earners are facing the biggest pensions gaps in the country – needing another £64,000 if they want to maintain their lifestyle in retirement.
Morrissey continued: “By contrast, the picture for lower earners is much improved. Using the Pension UK moderate income standard saw just 5.9% in the bottom fifth earning households reach pension adequacy.”
“Under the revised Barometer measure this rises to around 40%. This is because the state pension and auto-enrolment minimum contributions will go a long way towards helping them replace a large proportion of their pre-retirement income that will help them maintain their lifestyle.
“It’s an important issue, as the government looks more closely at adequacy in the pension system.”
She said: “Increasing auto-enrolment minimum contributions would undoubtedly help higher earners to bridge the gap to pension adequacy, but is it fair to expect lower earners to also accept the hike when they may already be struggling in the here and now and already be close to achieving adequacy? More thought needs to be given to how to incentivise higher earners to contribute more.”
The research found 42% of households held some form of non-pension investment, with 38.1% having both a pension and investments, and 3.9% having investments but no pension.
Morrissey added: “The self-employed — who typically have much lower pension adequacy scores compared to employed households — experience the largest gains when these additional assets are factored into our pension adequacy assessment.
“47% of self-employed households would reach retirement adequacy using this measure, compared to 36% if just pensions were used.
“This compares to 54% of employed households achieving adequacy when non-pension assets are accounted for (compared to 46% if just pensions are used.)”
She continued: “We have long championed the use of the Lifetime ISA for this group. The 25% government bonus acts in the same way as basic rate tax relief on a pension and income can be taken tax free.
“Importantly, money can be accessed in an emergency subject to a 25% exit penalty. We believe the LISA could be made even more attractive by expanding the current age criteria beyond the age of 40 and reducing the exit penalty to 20%.”
