Retirement confidence gap for DC pensions savers

In an era of increasing economic uncertainty, the question of retirement readiness looms large for many UK workers. Recent research by Barnett Waddingham sheds light on a concerning trend: a significant divide in retirement confidence among those with defined contribution (DC) pensions.

Our survey of over 2,000 UK workers with DC pensions revealed a stark reality:

"52% of people with a DC pension are confident they will have a comfortable retirement, while 48% aren't."

This near-even split masks a complex landscape of expectations and concerns that vary widely across age groups and financial circumstances.

Young optimism vs mid-life doubt

Interestingly, confidence in retirement comfort doesn't follow a linear path as we age:

• 71% of 18 to 24-year-olds feel confident about their retirement prospects.
• Confidence steadily declines, reaching its lowest point among 51 to 55-year-olds (42%).
• After age 55, confidence rebounds to 50% or higher.

This pattern suggests that while youthful optimism initially prevails, the realities of financial planning and life experiences temper expectations mid-career.

The countdown effect: confidence rises as retirement nears

Our research uncovered a fascinating trend. Confidence is relatively static for people with more than 25 years of work ahead of them pre-retirement, at which point confidence starts to rise.

As workers approach retirement, their confidence tends to increase:

• 58% are confident with five to 10 years of work remaining.
• 71% are confident with three to four years left.
• 73% are confident when retiring within the year.

However, it's crucial to note that 32% of those planning to retire within two years still lack confidence in their financial readiness.

Drivers of confidence: beyond the pension pot

For those feeling secure about retirement, additional factors play a significant role. Notably, men are more likely than women to have these additional financial safety nets:

• Other investments beyond DC pensions (29%).
• Outright property ownership (28%).
• Existing defined benefit pensions (8%).

Barriers to confidence: savings shortfalls and economic concerns

Among those lacking retirement confidence, key concerns include:

• Insufficient pension savings for their age (35%).
• Inability to save enough due to current income (32%).
• Lack of additional savings or investments (29%).

Housing costs remain a significant worry, with 12% fearing they'll still be renting in retirement.

The climate factor: a generational divide

An unexpected finding reveals a stark generational contrast:

"47% of 25 to 30-year-olds don't think a comfortable retirement will be possible when they're older, due to climate change/societal change."

This concern about long-term societal shifts adds another layer of complexity to retirement planning for younger workers and indeed the providers who build these propositions.

Building a more confident future

In order to improve the situation, there are two major solutions that policymakers must pursue. 

The first is to improve the auto-enrolment system, by widening who it includes and increasing minimum contributions – including auto-escalation of contributions with pay rises and after career breaks. The aspiration should be to build a DC system that generates employees a comfortable retirement, without needing further wealth to survive. 

The second is to hone in on the cohort approaching retirement, and work to ensure that people are able to confidently visualise their income and lifestyle after employment. This is going to require significant innovation and a much more robust at-retirement framework, specifically working to increase confidence in older workers that a comfortable retirement is possible for them.