As part of the major ongoing Pensions Review being undertaken by the Institute for Fiscal Studies, aimed at finding ways to improve the future of financial security in retirement, a new poll of 3,000 people of working age has revealed widespread confusion about how much they can expect to receive in retirement.

As part of the Review, abrdn Financial Fairness Trust, working with the Institute for Fiscal Studies, commissioned new polling from YouGov to examine people’s concerns about the pension system and investigate their understanding of it.Alarmingly, they found only very limited understanding of pensions in the UK. In particular, only one in five of people aged 25 to 64 could state to within around £20 how much a full state pension is worth in pounds per week. There is also widespread misunderstanding about how the “triple lock” works.

Fully two-thirds of people don’t know how high their income would need to be to have a reasonable standard of living in retirement and only 9% say they have good knowledge of pension issues.

Pessimism about retirement living standards and the future of the state pension

Despite lack of knowledge over the level of the state pension, there is widespread agreement that the state pension does not provide a reasonable standard of living in retirement, with 73% saying that it does not, compared to only 14% saying it does.

Perhaps as a result of this, significant numbers of people say that their retirement income will not be good. 41% say they will have a bad retirement income, rising to 47% for people from the “C2DE” social class and the self-employed, both groups for whom private pension saving is lower.

Amazingly, people are so pessimistic that only 1 in 5 expect to be better off in retirement than their parents, with almost half expecting to be less comfortably off, even among 50 – 64-year-olds.

A third of people think that the state pension will not even exist in 30 years’ time. The fact that the state pension is so important for many people’s retirement income means that it would be incredibly difficult – without enormous increases in private saving – to meet a good standard of living in retirement if the state pension or something similar did not exist. In many ways the state pension provides a “bedrock” for income in retirement, on top of which people can build private pension entitlement.

If retirement incomes are on course to be below par, who should pay more?

Retirement incomes – fundamentally – can only come from one of three sources: the state, employers of individuals themselves. To the extent that many will require or desire higher incomes in retirement than they are currently on track to receive, at least one of these sources would need to be increased to boost retirement living standards.

There is some agreement in the public about where these extra contributions should come from: almost 85% of people said that individuals and their families, and the government were responsible. This was followed closely by employers, at 78%.

It seems like there could well be public support for policies that ask a least a little more from all three potential contributors. And although 61% of people say they are currently satisfied with their pension contributions from their employer, policymakers should think about how the state, employers and individuals might work together to boost retirement incomes.

Where next for pensions?

Working-age people continue to face competing financial pressures that makes prioritising pension saving difficult.  Only 28% think that saving into a pension is one of their top three goals for saving (well below saving for a rainy day, or for expected expenses like buying a house or the financial costs of having children). It seems like relying – alone – on people making well-informed choices to save more for retirement is going to be hard.

With so many people pessimistic about their potential standard of living in retirement, the IFS suggests that policymakers should look for ways to make the system simpler and to boost confidence in what people can expect from it.

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