Pension crisis looms as almost three millions older Britons face 'bleak retirement'

This situation is expected to worsen over time, reaching a critical point in the early 2040s.

By then, three in five savers, equivalent to 2.67 million people, will fall short of the minimum income required for a basic standard of living in retirement, new analysis by Phoenix Insights, a think tank affiliated with Phoenix Group found.

It report defines a "minimum" standard as having enough income to cover basic needs, with some leftover for non-essential spending, which is based on the retirement living standards produced by the Pensions and Lifetime Savings Association (PLSA).

The group set to be hardest hit by this crisis are predominantly those born in the 1970s, female, working full-time, and earning below £80,000 – with around half earning less than £20,000.

These individuals are expecting to retire between the ages of 66 and 70.

The research shows that 17.7 per cent of DC pension savers retiring between 2040 and 2044 expect a retirement income below the "minimum" standard. This equates to £14,400 post-tax income for a single person or £22,400 for a couple.

Alarmingly, 41.2 per cent of savers are not on track to hit this threshold despite expecting to do so.

This minimum standard includes being able to afford a one-week UK holiday and having £50 to spend a week on groceries for an individual, or £95 for a couple.

The years 2040 to 2044 represent a critical period when the highest number of undersavers will enter retirement. Between 2025 and 2060, over half of defined contribution pension savers are projected to be either undersavers or financially struggling.

Patrick Thomson, head of research analysis and policy at Phoenix Insights, said: "The analysis paints a bleak picture of future retirement incomes.

"We are already reaching the stage where the majority of people with a defined contribution pension will enter retirement with either less than they expect, or less than they need in terms of a minimum living standard.

"This situation is set to worsen over time and peak in the next 20 years."

Experts are calling for urgent policy interventions to address the looming crisis.

Thomson emphasised the need to increase minimum auto-enrolment contribution rates when economic conditions allow.

"There is an urgent need to address under-saving to better support people to achieve financial security later in life," Thomson stated.

He also advocated for policies to make work more sustainable and accessible for the over-60s, enabling people to continue earning and saving later in life.

LATEST DEVELOPMENTS:

• Rachel Reeves plotting secret pensions raid that could raise £16 BILLION
• Thousands left 'short of money' in retirement as number of Britons living past 100 rises
• Winter Fuel Payments could be REINSTATED for pensioners - what to know

Tom McPhail, of pensions consultancy The Lang Cat, warned against treating retirement savings as "a convenient piggy bank for government spending plans."

McPhail suggested exploring creative solutions, including the use of housing wealth and equity release to address the forthcoming income gap.

Business leaders close to Labour have expressed hope that the party's pension review will include a commitment to raising minimum contribution levels for workplace pension schemes.