Marvin OnumonuScottish Widows’ latest retirement report found that 12.2 million UK adults are at risk of pension poverty in later life.
The national retirement forecast showed 31% face poverty in retirement, which is an improvement from 39% last year.
The drop is mainly due to higher savings outside pensions and more people expecting to own their homes, along with falling energy costs.
The report said these gains could be reversed if energy costs rise again.
Pete Glancy, head of pension policy at Scottish Widows, said: “This report paints a complex picture.
“While the fall in pension poverty compared to a year ago is a step in the right direction, this shift in retirement fortunes is complex and the current state of the nation’s savings is still polarised.
“The factors we can control, like how much we save or how much we expect to receive in retirement, may improve, but can easily be thrown off course by shifting external factors like increases to energy and general cost of living.”
The UK Government’s Pensions Commission is currently reviewing ways to improve retirement outcomes.
Scottish Widows recommends increasing the auto-enrolment contribution rate from 8% to 12%, extending auto-enrolment to the self-employed, and accelerating the link between pensions and other financial products.
The report found that boosting auto-enrolment to 12% could bring pension poverty down to 13%, and raise average pension pots by £40,000.
For those aged 22 to 29, the increase is projected to lift pension savings to £114,000 at retirement.
Defined contribution members saving below 12% would see pension poverty drop from 32% to 13% if the auto-enrolment rate increased across all salaries.
If applied only to the first £50,000, pensioner poverty would be cut to 14%.
The remaining people at risk are mostly self-employed, part-time or unemployed.
Glancy added: “The way people are working continues to evolve, but our retirement system still lags behind.
“This year we have modelled the impact of some policy changes only on the youngest workers as this gives us the best indication of the long-term benefit applying not only to them, but all future generations yet to join the workforce.
“We must also ensure that choosing flexibility today – through self-employment or part-time work – doesn’t come at the expense of tomorrow.”
He said: “Extending auto-enrolment to the self-employed, as is one of our recommendations to the Pension Commission, is critical and should be implemented at pace to close this gap in retirement saving.
“Most people are unlikely to have enough in their pension pots alone to fund their desired retirement, so pensions can no longer be viewed in isolation.
“Considering pensions alongside other savings, investments and housing wealth – and advancing the Government’s Open Finance agenda – will be key to improving retirement outcomes for all.”
