Not too late to save for your retirement as research reveals two thirds of Brits face shortfall

Despite UK taxpayers putting away on average £2,000 a month for their retirement¹, HSBC UK has found people are facing an average shortfall of over £10,000 a year compared to what they need to live the way they want to when they retire.

The average size pension pot is £230,463, which would generate just over £13,000 a year during retirement.²

This may seem sizeable but, a single person would need £23,300 per year to live a moderate lifestyle (over 60% of calculator users selected ‘moderate’ as their ideal retirement lifestyle), with financial security and flexibility, in retirement. To live comfortably, with more financial freedom and luxuries, you would need £37,300 per year.³

What’s more, the current state pension is £10,600. Although this is expected to rise to £11,501 in April 2024 it still leaves a £11,799 shortfall for those relying on the state pension alone in retirement.

However, it’s not too late to start making adjustments for your retirement - over 80% of HSBC UK respondents are more than 10 years from retirement. Around 39% are under 40, showing that people are thinking about their retirement needs at a younger age.

And, there’s help available. Under ‘automatic enrolment’ rules, employers are required by law to offer a workplace pension to anyone between age 22 and state pension age who is earning at least £10,000. The minimum total contribution under auto-enrolment is 8 per cent of ‘qualifying earnings’⁴, with 3 per cent coming from the employer, 4 per cent from the employee and 1 per cent via basic-rate pension tax relief.

The HSBC UK retirement calculator provides users with an estimate for how much they need to save each year to achieve the lifestyle they want in retirement. Whether it’s holidays abroad, new cars or spending on birthday presents – the tool will take a customers’ aspirations into account and work out a saving plan to make it achievable.

Rebecca Owers, Head of Investments, Wealth Solutions & Insurance at HSBC UK says: “It’s clear from our data that people can see themselves living a comfortable and satisfying life in retirement, but are underestimating how much this will cost.”

“An income of £20,000 a year may seem comfortable for retirement but the reality is it doesn’t fund the holidays you were expecting to take, the odd luxury here or there, or the car upgrades. Those come with a need for a higher income, which leaves you with a shortfall.”

“It can feel daunting to plan for retirement, but putting money aside now can help you achieve your aspirations later in life. It’s never too early to start planning for your retirement.”

The data echoes findings from the HSBC Quality of Life Report which identified saving for retirement as one of the top financial goals. However, just over half said they were financially well prepared for retirement.

Those who said that they hadn’t saved enough, had on average an 87 per cent savings gap they needed to fill to meet their retirement savings goal. While 30 per cent planned to work past retirement age to help plug the gap.

For more information visit: www.retirementcalculator.hsbc.co.uk

5 steps to take if you haven’t saved enough for retirement

1. Maximise your pension contributions: If you can free up more cash to go towards your retirement, now’s the time to increase your pension contributions. For example, you could change your weekly takeaway to monthly and put the money you save (£25 a week = £1,000 a year) into your pension instead. This way you can add as much as possible to your retirement savings and make the most of the tax relief from the government. The longer you have your money invested, the more time and potential it has to grow.
2. Start saving more: The more you save now, the more you’ll have to retire on. Plus, the more time you’ll give that money to grow. So take a fresh look at your finances to see if you could be smarter with your money. Or think about whether you could generate any extra income for your retirement from a hobby or side job.
3. Consider investing: If you can put money aside, you might consider investing into a stocks & shares ISA on top of your pension. There’s still time for your money to grow and an investment could give you more flexibility than investing in a pension.
4. Make the most of joint allowances: If you’re married, in a civil partnership or in a stable relationship with shared assets, it could make sense to look at both your pensions and savings together. Our retirement calculator can help you work out the joint cost of living – as two can retire more cheaply than one.
5. Adjust your retirement plans: If you’re getting closer to retirement age and are concerned that you won’t have enough money, think about whether you can delay when you finish work. If that’s an option, let your pension provider know as it may make sense to change where your pension is invested. Switching to reduced working hours or ‘semi retirement’ can be a way to have more financial security while also achieving a better work-life balance.

¹ All data unless otherwise stated is based on the responses of 60,000 people who used the HSBC UK retirement calculator tool between 1 November 2021 and 30 September 2023

² Figures based on no PCLS taken at outset – annuity purchase price of £230,463. Amount sustainable until age 88 (based on average life expectancy for a 65 year old female in good health):

Best annuity with 5 year guarantee = £16,516 per year (all taxable) – this is £13,212.80 net if no personal allowance remaining and basic rate taxpayer Lowest annuity with 5 year guarantee = £15,740 per year (all taxable) – this is £12,592 net if no personal allowance remaining and basic rate taxpayer

Phased drawdown = £15,500 per year (£3,875 tax-free, £11,625 taxable) – this is £13,175 net if no personal allowance remaining and basic rate taxpayer (Based on open market quotes obtained on 17 November 2023)

³ According to PLSA Retirement Living Standards

⁴ In 2023/24, qualifying earnings are salary between £6,240 and £50,270. Source: Automatic enrolment in workplace pensions - GOV.UK (www.gov.uk)

Media enquiries to:

Hannah Langston
HSBC UK Press Office: 07384 792 248 / hannah.langston@hsbc.com