Startling new research shows that the number of people who believe they will never be able to afford to retire is soaring, thanks to ongoing concerns around the rising cost of living relative to earnings.

Cost of living pressures are leading to many employees failing to put enough into their savings. Four out of five employees are currently failing to save 12% or more of their earnings, the level recommended by the living pension benchmark for a minimum retirement standard.

Despite this, 45% believe they are saving enough, while 38% believe they will never be able to afford to retire.

Tellingly, according to new research from WEALTH at Work, 10% do not know how much is being contributed to their pension at all.

The picture is muddied by the fact that the rising cost of living is hitting employees in some parts of the economy much harder than others

The latest Government stats on wage growth in the UK show that – broadly – workers on average are only just about keeping up with inflation… but that masks big differences between sectors… and the private sector is currently faring badly.

Against the current 3.0% CPI inflation rate, the headline 3.4% regular nominal wage growth varies drastically across the economy.

According to the Office of National Statistics, regular pay has grown by 5.1% in the public sector in the same period, but just 2.9% in the private sector.

Moreover, part of this growth comes from increases in the National Minimum Wage for lower paid workers, making them one of the few groups whose base wages outpaced cumulative inflation.

The moving goalposts of retirement

The study, which surveyed 2,000 UK employees, highlights the growing challenge many face in balancing everyday living costs with saving for later life.

Concerns about retirement adequacy are widespread. Over four in five (83%) employees say rising living costs will leave them less comfortable in retirement due to a shortfall in pension savings, up from 81% last year, indicating a worsening financial outlook for many people.

Additionally, 82% are concerned they will need to work longer to make up for a shortfall in pension savings, up from 80% in 2025, reinforcing expectations that retirement may be delayed.

Jonathan Watts-Lay, Director, WEALTH at work, comments: “Those who are approaching retirement should work out a financial plan, starting by carefully looking at what pensions, savings and investments they have, and then how much they think they will need.

“This can be difficult to estimate but the Pensions and Lifetime Savings Association (PLSA) have this month updated their guidance around this.

“Moderate standards have increased slightly to £31,700 for a one-person household and £43,900 for a two-person household. Comfortable standards have also risen to £43,900 and £60,600 for two-person households.”

He explains: “If people find what they have saved isn’t going to be enough, it may be worth delaying retirement or continuing working part-time if able. Although this may not be a prospect many want to face, it would enable people to make more pension contributions whilst taking advantage of tax relief and employer contributions for longer and ultimately build up their savings for a more prosperous retirement.”

A general lack of pension understanding

As well as the challenges faced due to rising costs, the research also looked at workers’ understanding of pensions. It found that 21% are unaware that their pension is invested, and 30% are unaware that their pension has a choice of investment funds to choose from which increases to 38% for those aged 55+.

Additionally, 39% are unaware of what their pension is invested in and 25% are unaware that if they don’t choose what their pension is invested in, it will automatically be done for them by their pension provider (into the default investment fund).

Interestingly, over half of workers (54%) have considered choosing pension investments based on their values and beliefs (such as environmental, social or religious). Yet only a quarter (24%) have done so.

Encouragingly, despite the current cost of living challenges, 41% would consider increasing their contributions if they knew their pension was investing in funds that aligned with their values and beliefs. This increases to over half (53%) of workers aged 25-34.

Alongside these findings, the research found that 26% feel unsupported by the workplace to understand their pensions. When asked who they mostly seek pension guidance from, only 16% chose their employer and 10% said no one at all.

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