Scottish Widows’ The Future Of Retirement report found that, alongside millennials, ‘disengaged’ savers and the self-employed face steep gaps between pensions expectations and reality.

It found that the average saver believes they need an annual income of £25,000 for a comfortable retirement – but at current saving rates, their total pension pot will only provide an income of £18,500 per year.

Disengaged savers

The report issued a warning to so-called ‘disengaged’ savers, who make up 38 per cent of the population. This group doesn’t know how much they are saving, or if they are saving anything at all.

Despite also anticipating a retirement income of £25,000 each year, this group will only receive £13,000 per year if automatically enrolled – a shortfall of £12,000, or almost half the money they expect to need. The report proposes that increasing minimum contribution rates could help bridge the gap for disengaged savers.

Those who might be more vulnerable to financial pressures, or on lower-middle weighted incomes, have lower expectations, citing £17,500 as the annual income needed in retirement. They still, however, face a significant gap of £3,200 between their expectations, and their projected retirement income of £14,000.

While this shortfall is lower than the national average, its impact could be greater as this group faces challenges when it comes to saving, both for the short-term and for their retirement. In fact, one in five (20 per cent) of those currently earning between £10,000 and £20,000 per annum believe they will never be in a position to retire.

The self-employed risk being left behind

Scottish Widows also highlighted the plight of self-employed people who are solely responsible for deciding how much should go into their pension pot each month and so miss out on the ‘nudge’ to save provided by employer pension contributions and government initiatives.

While there has always been a savings gap between employees and the self-employed, it has been exacerbated with the introduction of automatic enrolment.

As a result, just 32 per cent of self-employed people between the age of 20 and 39 are saving adequately for retirement, while 41 per cent save nothing at all. While their income expectations for later life are slightly lower than average, they’re still set to experience a sizeable annual shortfall of £5,000 by the time they reach retirement.

Pete Glancy, head of policy at Scottish Widows, said: “Automatic enrolment is improving the retirement prospects for many, but those who fail to save beyond the default requirements of the scheme will be faced with a significant income gap.

“The first step in closing this gap is acknowledging the interlocking challenges faced by different groups, from the self-employed through to those who simply don’t know how much they are saving.

“We need to see reform for the self-employed on a par with automatic enrolment and the introduction of new minimum and default contribution levels to address the issue of the disengaged generation.”