Research reveals retirement dreams vs financial reality gap

Many workers have dreams for their retirement, with 87% of workers having clear aspirations for their retirement, including holidays, spending time with family, pursuing hobbies, and spending more time with a partner. However, despite these aspirations, a mere 15% of people have set clear financial goals and a budget for their retirement. This discrepancy highlights the tension between retirement dreams and the reality of financial preparedness.

Barnett Waddingham’s latest report, 'The At Retirement Reckoning', takes a close look at this discrepancy. It surveys over 5,000 UK workers, more than half of which are over 50, and reveals a concerning gap between retirement dreams and the reality. Employees are ambitious in their hopes for their retirement but this is shown to be mismatched with their financial readiness. 

Gen X – aged 43 to 58 – are especially at risk. More than half (53%) are confident they’ll have a comfortable retirement, while 41% are not. But only 12% – one in eight – have clear financial goals and a budget for retirement. 33% have ‘a rough idea’, 16% have no plans yet but plan to make some, and a startling 13% have no plans and no intention to start planning. 

Given Gen X’s big dreams for retirement – 39% want to travel abroad, 32% want to start new hobbies, 19% plan to move to a new place, 9% want to redecorate the house, and 5% want to start their own business – the lack of financial planning to-date means they could be in for a harsh reality shock. 

Paul Leandro, Partner at Barnett Waddingham, comments on the Gen X mirage, saying, “There is a chasm between expectations and reality when it comes to Brits thinking about their retirement. People – especially those in their 40s and 50s – are being driven to dream of a retirement filled with travel, pursuing hobbies, and even a life overseas. But the life on offer may be a mirage; the aspirational lifestyle so readily on display by their parents and loved ones today is most likely funded by DB pensions – a luxury which won't be there for the retirees of tomorrow. Without a notable shift in saving patterns, many will be in for a rude awakening. Aspirations with no plans are just pipe dreams.” 

More than half of Gen X (51%) have a DC pension, while only 30% have a DB one. Concerningly, 49% of this cohort believe the state pension will be critical retirement income. With the current UK State Pension providing a maximum of £10,600 annually, this reliance could leave many retirees struggling to cover even the basics.

Barnett Waddingham’s findings suggest that the UK is on the brink of a retirement crisis. Without major changes in retirement planning and support, many individuals may find themselves unprepared for the retirement they’ve envisioned.

An under-preparedness for the shift from DB ‘gold-plated’ pensions to a DC-dominated savings landscape, combined with a heavy reliance on the state pension and lack of financial planning, signals that the next generation of retirees might be forced to work longer, depend on family support, or face a diminished quality of life.

Mark Futcher, Head of DC at Barnett Waddingham, calls for a reevaluation of our system to avoid a crisis, “Sadly, there’s no silver bullet to the ticking pensions timebomb. But there are some changes that could make a real difference. Firstly, improve the auto-enrolment system, by widening who it includes and increasing minimum contributions. The aspiration should be to build a DC system that generates employees a comfortable retirement over the course of a career, without needing further wealth to survive.

“At the other end of the career journey, we can build confidence by helping people 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 if they make the right financial decisions, and quickly.