The UK's pension gap: insights on retirement resilience and inequality

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[0:09] Sarah Coles: Hello and welcome to Switch Your Money On from Hargreaves Lansdown. I’m Sarah Coles – Head of Personal Finance.

[0:14] Helen Morrissey: And I’m Helen Morrissey – Head of Retirement Analysis.

[0:17] Sarah Coles: And this is our Personal Finance update.

So, it’s great to have you guest-presenting, Helen, particularly as it’s such an exciting time of year.

So, this is where we see the launch of the 8th edition of the HL Savings and Resilience Barometer. So, that’s where we take the temperature of the nation’s finances – and there are some really interesting findings, including an alarming pensions gap that has become clear and affects people that you might not expect to be affected.

[0:40] Helen Morrissey: Yeah – no, I’ll be looking forward to talking about that a little bit later, and we’re also gonna be speaking to Nathan Long – Senior Analyst at HL and the brains behind the Barometer on the findings.

Welcome, Nathan.

[0:51] Nathan Long: Hi, both – thanks for having me on.

[0:53] Sarah Coles: Well, we’ve got loads to get stuck into – but, before we go any further, we should explain a little bit about what the Barometer actually is.

So, this isn’t a survey of people’s opinions – this is about what people are actually doing with their money. So, it starts with huge official datasets – that includes things like the FCA’s Financial Lives Survey and the Office for National Statistics’ Wealth and Assets Survey. And then, Oxford Economics models the data and brings it right up to date – because some of the data in these pieces of work are a little bit older – and it gives us a picture of our finances across the Board.

So, we have things like debt – so it looks at how much debt people have and how affordable those debts are – and then it looks at savings – so how much people are saving and if they’ve got enough for emergency saving – and if they’ve got enough for emergency saving – so that’s at least three months of essential spending – and then it looks at protection – so things like life insurance. And, obviously – Helen, you’ll be pleased to know, retirement – so that covers pensions, and also some of the assets that you’ll use in retirement, and then investment.

[1:43] Helen Morrissey: So, yeah – so we covered the investment findings in our last podcast – so anyone who’s interested in finding out a bit more about those findings should listen back.

Now, Nathan – as long as you can make yourself heard over the amazing crashing rain and thunder that is going on outside right now – can you give us a snapshot on how people are doing, a bit more broadly?

[2:02] Nathan Long: Yeah, sure – it’s a wet day in the West Country today, isn’t it?!

[2:05] Helen Morrissey: [Laughs]

[2:05] Nathan Long: Look – so financial resilience... I suppose the main story is it’s not as strong as when we hit our pandemic-peak. Now, it’s still better than where we were, pre-pandemic – so before the crisis. So, the amount of money people have after tax and inflation is up 1.6% in a year – and the average household now has £155 left over at the end of the month. That’s actually twice the amount they had prior to the pandemic – so those are all positives.

So, households are saving slightly more – so more than half now have enough cash squirrelled away for a rainy day – have enough emergency savings. The average household has enough, actually, to cover 3.3 months of their essential spending – that’s increased by over a month since before the pandemic. And I guess the other key thing to pull out is that the debt position has changed and improved significantly.

So, what we’ve seen is, with that extra surplus income, people have repaid their debt – but, also, we’ve seen people on variable-rate mortgages switch to fixed-rate mortgages – which, in our analysis, improves their debt position.

[3:05] Sarah Coles: So, there are some huge positives here – but, I guess, one of the things that always come out in the Barometer... that things just aren’t the same for everyone. So, I guess, it breaks it down into how different groups are doing – can you tell us a little bit more about that?

[3:17] Nathan Long: Yeah – so it’s really not even at all. If we look, geographically – for example – there’s a gap of 15 percentage points between the most resilient local authority – so that’s Elmbridge in Surrey... when you compare that with the least resilient, which is Kingston upon Hull.

If you think about it, it’s fairly logical – but the affluent home counties... that they account for 8 of the 10 most resilient local authorities – whereas, actually, it’s the London boroughs that dominate, with 5 out of the 10 lowest resilient areas being based in the capital.

So, one of the key catalysts for that is actually home ownership. So, the rate of home ownership in the lowest resilience areas is 43% - when we compare that to the highest or the strongest resilient areas, it’s 71% .

[4:02] Sarah Coles: And, I guess, when you’re talking about London, one of the big things is that houses are so expensive in London – and that does take a toll elsewhere on people’s finances.

[4:10] Nathan Long: Absolutely – and, often, you’d have younger folk working in London to begin their careers as well before they move out – so all of that leads in, yeah.

[4:17] Helen Morrissey: And so, what about the variation across the different income levels – what do we see there?

[4:23] Nathan Long: Yeah – so income is always one of the biggest things. I mean, there’s no secret – if you earn more, you’re typically more financially resilient. It doesn’t always mean that you structure your finances in the best way, but it is a pretty strong indicator.

So, just to give you one example... the highest-earning households – they hold 7.8 months of their essential spending as cash. If we compare that to the lowest-income households that only hold half a month – and that’s despite the fact that the households who have higher incomes, their essentials tend to be more expensive.

[4:56] Sarah Coles: And, I guess, one of the really interesting things is this gap between the wealthiest and the least wealth... that’s growing as well, isn’t it?

[5:02] Nathan Long: Yeah, it is – and that’s, again, seen it quite stark as we come out of that period where we’d been in lockdown. We’d seen that before, but it continues to show in this latest edition as well.

[5:10] Sarah Coles: So, at the risk of asking the impossible...! I mean, I know there’s lots of forecasting in the Barometer – so can you tell us a little bit about what we can expect?

[5:17] Nathan Long: Yeah – so I would actually say this is probably one of the areas where, probably, gives us most confidence, moving forward. So, we’re not actually expecting anything to be too different in 12 months’ time. So, a boring period is actually quite reassuring, I suppose.

So, we’re not expecting too much change on the financial resilience scores, more broadly. We might see a modest increase in disposable income – so you might see improvements in savings rates and people holding cash – that kind of thing. However, if earnings growth stagnates again, you might see the downside of that, with less being held, and being served as income, and then being able to get all the benefits associated with that.

I think longer-term resilience is the one where we’re probably looking out for that. So, house-price growth – if that’s sluggish, then we’re gonna see that knock-on in terms of resilience – and also we do expect that gap – that pensions gap – which I think you might talk to us a bit about, Helen! – ...

[6:08] Helen Morrissey: Indeed.

[6:09] Nathan Long: ...that’s starting to open up a bit more in the next 12 months. But, broadly, fingers crossed – next 12 months, hopefully, quite stable.

[6:17] Sarah Coles: You mentioned ‘Stable’ – I’m glad you didn’t mention the word ‘Boring,’ and then move on to talk about pensions ‘cause that would just upset Helen, dramatically. But, I mean, in terms of pensions, there’s loads of really interesting stuff in the Barometer, aren’t there?

[6:27] Helen Morrssey: There absolutely is – there’s nothing boring at all about pensions...

[6:31] Sarah Coles: [Laughs]

[6:31] Helen Morrissey: ...and these findings – and the Barometer definitely show that. So, according to the latest Barometer findings, just 43% of households are on track for an adequate retirement income – so there’s still a really big gap there. And what I think is particularly troubling about that is the shortfall in retirement savings among higher-earning households. So, the Barometer estimates that the highest earners are actually facing the biggest pension gaps to their pension adequacy in the country – and they need, on average, £64,000 extra in their pension if they want to maintain their lifestyle in retirement... this compared to a pension gap of around £1250 among the lower-earning households. So, it’s a reversal, really, as to what you might think when it comes to pensions adequacy.

Much of this does come down to how we assess adequacy in retirement – ‘cause we have made some changes to how we do that in the Barometer quite recently.

[7:33] Sarah Coles: So, in terms of this change that you talk about, can you just take us through a little bit about how you’ve done that?

[7:37] Helen Morrissey: Yeah – so thank you, Sarah.

So, in the past, we’ve used Pension UK’s Retirement Living Standards – and what they aim to do is put a pounds-and-pence figure for how much you would need to hit a minimum, moderate, and comfortable retirement standard. So, going down this route would have seen 51.8% of households in the top 20% of earners reaching the level needed for a moderate income in retirement – but what that tends to do is it ignores lifestyle and different people want different things from their lifestyle that they will want to see carry through into their retirement – so we made some changes in the most recent Barometer.

So, now we’re starting with the Pension Commission’s target replacement rates – and what that means is that you save enough to give you an income that hits a specific percentage of your pre-retirement earnings – so, for instance, that might be two-thirds – and then we add a minimum floor to that – so that would be the Living Wage Pension, to make sure that those people on the lowest incomes are still saving enough to give them an okay income in retirement.

So, the change sees us drop to around 40% – in a clear sign that higher earners are saving – but they’re still not saving anywhere near enough if they want to maintain their pre-retirement lifestyles in retirement.

[8:59] Sarah Coles: And I guess that also changes the picture for lower earners as well?

[9:03] Helen Morrissey: It really does – and actually shows that the picture for lower earners is better. Under the old measure, for instance, just 5.9% of households in the bottom-fifth earners would reach pension adequacy – but, under the new measure, this also rises to around 40%. More accurately, this is because the State Pension and the minimum contributions that you would get under auto-enrolment will go a long way towards replacing what they need in retirement for their income, as compared to their pre-retirement earnings. So, some very interesting developments there.

[9:40] Sarah Coles: Yes – and it’s nice to actually have some good news on pensions – and nice change.

I would say, the other thing that’s in the Barometer that is interesting is that, logically, you know, when people reach retirement, that it’s not just the pension that they have in their back pocket – there are other things as well. So, the Barometer’s actually factored some of this in, hasn’t it?

[9:55] Helen Morrissey: Yeah – and I think it’s really important that we do look beyond pensions – ‘cause people don’t just have pensions in isolation – they do have other savings – they do have other investments – and bringing all that together can have a significant impact on people’s adequacy in retirement.

So, what we saw in the Barometer is that just over two in five households – so around 42% – report holding some form of non-pension investments. So, specifically, 38.1% – very specific – of households have a pension and investments – while a further 3.9% have no pension, but they do have investments.

So, including all these other assets can give people’s retirement planning quite a significant boost – and this can have a really big impact on groups such as the self-employed – ‘cause they, typically, have much lower pension adequacy compared to employed households – and that’s because they don’t tend to save as much in pensions for various reasons. And so, when you factor in these extra assets, you can see them experiencing really large gains when they’re factored in, and it can really boost their pension adequacy assessments.

[11:05] Sarah Coles: And, I guess... you talk about that they don’t tend to have so much in pensions – and they do tend to have more elsewhere. Can you explain a little bit about why that might be?

[11:12] Helen Morrissey: Yeah – so I think there’s a few reasons why self-employed people are less likely to use pensions – and one of them is that, once you’ve started saving into a pension, you can’t access that money until at least the age of 55 – that’s going up to age 57 in 2028 – and this can cause a problem for some self-employed people because they’re thinking, ‘Well, what if I need that money? – What if my income takes a dip and I need to be able to access my money that bit more easily?’

Others may have issues around thinking that they need to make regular contributions to their pension – and they might not be able to free up that money every month – so it makes them less likely to use a pension. They might look elsewhere – such as ISAs, for instance, or property, to try and build up their wealth that way.

[11:56] Sarah Coles: There’s a lot to factor in – and it is a really interesting, broader picture.

So, the full report is on our website, so it is worth going and having a look, and delving into more of the details, and finding it just as fascinating as we do!

But I should now step away a little bit from the Barometer and to take us to the stat of the week – which I know is everyone’s favourite time of the week.

Now, this time, I’ve stuck in the world of pensions ‘cause I know, Helen and Nathan, you are both big fans of the world of pensions – and so I’ve gone back to the beginning.

So, the State Pension was introduced in 1909 – and, at that point, it was 25 pence each a week, but how old did you need to be to qualify? Given that life expectancy around that time – so in 1911 – was just over 55 for women and just under 52 for men.

So, was the State Pension age 50, 60, or 70?

[12:41] Helen Morrissey: D’you wanna have a first go at that one, Nathan?

[12:44] Nathan Long: You’re gonna anchor against my position. I’m gonna go ’60’ – ...

[12:46] Helen Morrissey: [Laughs]

[12:47] Nathan Long: ...I’m gonna go ’60.’

[12:48] Sarah Coles: Okay.

[12:48] Helen Morrissey: Ah! See, ‘60’ was my initial one – ...

[12:51] Nathan Long: Oh, sure it was – yeah!

[12:52] Sarah Coles: [Laughs]

[12:52] Helen Morrissey: ...because what I’ve noticed, in the past – when people have looked at State Pension systems, they’ve usually been introduced in the hope that most people would have died by the time that they would have received it. But, d’you know what? – I’m gonna go for ’70.’

[13:06] Sarah Coles: Well, that’s a great guess because you are actually right – it was ‘70.’ So, I think you may have a point that there was an element of cynicism – of the fact that average life expectancy in the early-50s... ‘So let’s set it nice and high and hope that nobody actually gets the chance to draw it.’ Which, clearly now... for what everybody says about the State Pension, at least we’re better off than that.

[13:25] Helen Morrissey: Absolutely – absolutely.

[13:27] Sarah Coles: Well, thanks very much for joining us.

Before we go, we should say this was recorded on 3rd September 2025 and all information was correct at the time of recording.

[13:34] Helen Morrissey: Nothing in this podcast is personal advice – you should seek advice if you’re not sure what’s right for you.

[13:40] Sarah Coles: The Government offers a free impartial service – Pension Wise – to help you understand your retirement options.

[13:45] Helen Morrissey: Investments rise and fall in value, so you could get back less than you’ve invested. Investment income varies and isn’t guaranteed. Pension ISA and tax rules can change and benefits do depend on personal circumstances.

[13:57] Sarah Coles: So, all that’s left is for me thank you both – thank you, Nathan and Helen for those insights into the Barometer – and our Producer, Elizabeth Hotson.

[14:04] Helen Morrisey: Thank you very much for listening – and putting up with me as your guest host for...

[14:07] Sarah Coles: [Laughs]

[14:08] Helen Morrissey: ...today. We’ll be back again soon – goodbye!

[14:10] Sarah Coles: Goodbye!

[14:11] Nathan Long: Goodbye!