Pensioners of tomorrow risk staggering £68K shortfall as they underestimate cost of retirement

05 March 2019


  • Poll shows pensioners need average of £885 a month – £380 more than the £505 state pension
  • But one in three people in middle age set to retire on state pension alone – leaving £68k shortfall
  • Many are worried about being able to afford retirement and living the lifestyle they want to live
  • Less than one in ten have clear retirement goals and over half don’t know their pension value

Pensioners of tomorrow risk a shortfall of more than £68,000 over the course of their retirement as one in three (33%) middle-aged Brits expect to survive solely on their state pension, new research from Nationwide Building Society shows1.

Based on today’s pensioner spending habits, those retiring in future could be close to £400 out of pocket each month due to a gap between expectations and reality. This significant miscalculation could prove to be a major setback to tomorrow’s pensioners enjoying their later life – forcing them to abandon plans for travelling, moving home or supporting their children and grandchildren. The shortfall would be enough to enjoy a round-the-world cruise for two, buy a new car, build a conservatory and gift the grandchildren a deposit for their first home2.

Nationwide, which polled more than 1,000 people aged 40 to 60, commissioned the research to better understand the issues people face when it comes to giving up work, particularly as final salary pensions continue to decline and life expectancy continues to rise. Britain’s biggest building society is currently looking at how it can better serve those approaching or already in retirement by helping them access their money in different ways.

The research shows that just four in ten (40%) people in middle age have a private pension in place. It also highlights that more than half (52%) of people aged 40 to 60 are worried about affording retirement, with four in ten (43%) not believing they will be able to afford the lifestyle they want when they finish work.

Pension shortfall
Those in their middle age expect their monthly shortfall in retirement to reach an average of £208. This equates to £37,440 when taking into consideration the current retirement age and average life expectancy3.

However, the reality is that their shortfall could be around twice as high, with those polled already in retirement aged 60 and over saying they receive £505 a month in state pension on average but require £885 a month to live on – £616 for essential bills and £269 discretionary spending4. For those without an additional pension to take them beyond the basic state allowance, this leaves a shortfall of £380 a month, or £4,560 a year. This means tomorrow’s pensioners may need to tighten their belts and hunker down in retirement - a time they want to be enjoying life and supporting their family. In an average 15-year retirement the shortfall would amount to £68,4005, well over twice the average £27,000 annual salary

Pension Inertia
Despite retirement being on the horizon, just nine per cent of those aged between 40 and 60 have set clear retirement goals, while more than half (54%) are completely unprepared, with no idea how much is in their pension pot (44% for those aged 55-60). More than a third (37%) don’t know what their retirement income will be.

Saving towards retirement is a struggle for many, with close to half (49%) of those surveyed saying they are struggling to save because of limited disposable income (26%), while more than one in five (23%) say the cost of living puts them off. A further 16 per cent say debt is prohibitive to saving.

What Retirement?
This lack of planning means that close to three in ten (29%) believe they will have to work as long as possible in order to fund their retirement, while close to six in ten (57%) said they plan to ‘unretire’ if they find themselves financially stretched.

Home Help
The survey shows that those in middle age have an average of £125,350 equity currently in their home but would try and find other ways to survive before tapping into their property wealth. Around a third (32%) see accessing equity in their property as a last resort, while more than a fifth (28%) don’t want to leave any debt to their family. A quarter (24%) wouldn’t know who to approach if they needed advice on their retirement.

Jason Hurwood, Nationwide’s Director of Home Propositions, said: “We are living longer and need more money to keep us going. The reality is that without adequate income, and potentially living a third of our lives in retirement, older people risk missing out at a time in life when they want to relax and enjoy themselves. As an industry we really need to do more to help people access their money in later life and it is something we are continuing to explore.

“Options should be varied; we can’t presume releasing equity in the home is the solution for all older people with limited income, despite healthy average levels of equity. There needs to be more education and support so that people can take charge of their own futures and pick the option that is right for them and their circumstances. Recalibrating the relationship between our money, our expectations and our assets is key to unlocking a retirement that is comfortable.”

Notes to Editors:

1Research by Censuswide: total sample size was 1,013 UK 40 to 60 year olds in employment. Research ran from 21/01/2019 to 17/02/19.

2 Based on: Average price of a car of £12,919 (research by autoeurope.co.uk)
Average price of world cruise per person of £9,999 (source: www.cruisecritic.co.uk)
Average price of a Victorian conservatory of £7,500 (source: www.localconservatoryprices.co.uk)
Average first time buyer house deposit of £27,658 (source: Nationwide Building Society)
Total: £68,075

3 Based on the current retirement age of 66, which is incrementally rising over the year ahead, combined with the average UK life expectancy of 81 years, this equates to £37,440 over 15 years. Source: https://www.ageuk.org.uk/information-advice/money-legal/pensions/state-pension/changes-to-state-pension-age/

4 Those aged 60 and over in retirement said they receive £505 in state pension on average but require £885 a month to live on - research by Censuswide: total sample size was 1,007 UK 60+ year olds in retirement. Research ran from 25/01/2019 to 17/02/19.

5 Based on the current retirement age of 66, which is incrementally rising over the year ahead, combined with the average UK life expectancy of 81 years, this equates to £68,400 over 15 years. Source: https://www.ageuk.org.uk/information-advice/money-legal/pensions/state-pension/changes-to-state-pension-age/

About Nationwide

Nationwide is the world's largest building society as well as one of the largest savings providers and a top-three provider of mortgages in the UK. It is also a major provider of current accounts, credit cards, ISAs and personal loans. Nationwide has around 15 million customers.

Customers can manage their finances in a branch, via the mobile app, on the telephone, internet and post. The Society has around 18,000 employees. Nationwide's head office is in Swindon with administration centres based in Northampton, Bournemouth and Dunfermline. The Society also has a number of call centres across the UK.

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