Millions face later life uncertainty as less than a fifth of employees have a clear plan for life in retirement

• Just under one in five (18%) employees have a clear retirement plan despite widespread concern about life after work.
• Employees aged 35-49 are least likely to have a clear plan, with just 13% saying they have one.

People across the UK are facing a growing gap between their retirement aspirations and the reality they expect to face, according to Royal London's report 'Workplace pensions – Retirement ready?'.

The research* behind the report found that while more than half (51%) of employees with a workplace pension have given their financial needs in retirement a lot or quite a lot of thought, only 18% say they have a clear retirement plan.

In addition, retirement itself is increasingly being viewed as a gradual transition rather than a single event. More employees expect to phase into retirement by reducing their hours (35%) than retire completely at a specific age (31%).

The findings also reveal a significant disconnect between the age at which people would like to retire and the age they realistically expect to stop working.

On average, employees would ideally retire at 62 years and 5 months old but believe they will actually need to work until they are 65 years and 7 months old, creating a gap of more than three years. Younger employees aged 18-34 would ideally retire at 60 years and 1 month old but expect they will need to work until they're aged 64 years and 5 months old, the largest gap of any age group in the research.

The research comes amid growing debate about the future role of the State Pension following the Government's announcement that the current triple lock will be reformed from 2030. The proposals have reignited discussion about how future generations will fund retirement and the balance between state support and private pension saving.

Royal London's research suggests many are already concerned that their retirement ambitions may be difficult to achieve. Employees estimate they will need an average annual income of £44,193 for a good standard of living in retirement, while younger employees believe they will need considerably more, at £58,413 a year.

The £35,780 annual income that employed people in their 50s and 60s expect to need for a good standard of living in retirement is broadly in line with the £32,700 income that could pay for a moderate Retirement Living Standard for one person living outside London, according to Pensions UK. However, the Retirement Living Standards assume no housing costs and that any tax due has already been deducted.

Aspirations are running ahead of planning

The findings paint a picture of employees who are engaging with the idea of retirement but have yet to translate that awareness into concrete plans.

More than four in ten employees aged 18-34 (46%) say they have already given 'a lot' or 'quite a lot' of thought to their retirement finances, demonstrating that younger generations are not ignoring retirement altogether. However, only 19% of that age group say they have a clear retirement plan.

Employees aged 35-49 are least likely to have a clear plan, with just 13% saying they have a plan to achieve their retirement goals.

Commenting on the findings, Clare Moffat, pensions and tax expert at Royal London, said:

"The research highlights a challenge we've seen for some time. Many people have a clear picture of the retirement they would like, but far fewer have a clear plan for how they will get there. We're also seeing that more people are phasing their retirement so the traditional view of finishing work completely isn't how some people will spend their later years.

"The gap between people's ideal retirement age and the age they realistically expect to retire suggests that many recognise they may not currently be saving enough to achieve the future lifestyle they want.

"Discussions about changes to the State Pension and the triple lock inevitably bring retirement planning into sharper focus. The State Pension remains an important foundation of retirement income, but if people want a more comfortable retirement, then they need to consider workplace pensions and longer-term savings and make important decisions about the amount of money they save for later life."

What can employees do now to make a difference to their future?

Clare Moffat gives her view on the best options for employees to improve their retirement outlook:

"The good news is that there are practical steps people can take. Workplace pensions offer significant advantages because contributions are not just coming from the employee. Employers have to make contributions into your pension – unless you're aged under 22 or earning less than £10,000 per year and you haven't asked to be enrolled into the scheme – and there is a benefit from tax relief too, a top-up from the government. That means stopping contributions or saving less can have a much bigger impact on retirement income than many people realise.

"Pensions benefit from the magic of time. Even relatively small increases in contributions can make a meaningful difference over the long term because of investment growth.

"People should make sure they're receiving the full employer contribution available through their workplace scheme. Many employers will pay more if an employee pays more through pound for pound matching. Check whether increasing contributions is affordable if you receive a pay rise and regularly review whether your retirement expectations are realistic.

"It's also important to keep track of pensions from previous jobs and make use of any guidance or support available through employers and pension providers. The earlier people engage with retirement planning, the more options they're likely to have later in life."