Are You Heading Towards Pension Poverty? (And How To Turn It Around)

Pension poverty is when someone doesn’t have enough money to cover their basic needs during their retirement years. This includes costs such as everyday food, housing and household bills.

Almost two million pensioners are currently living in poverty in the UK according to data from the Department for Work and Pensions.

The risk of pension poverty affects millions of people in the UK. Around 12.2 million are at risk of not being able to afford the cost of living in retirement according to the latest Retirement Report from Scottish widows.

For a deeper break down check out our Investing Insiders Podcast episodes:

• The Pension Crisis You Can’t Ignore with Dr Priya Khambhaita
• Beating the UK Pension Crisis with Sir Steve Webb

The amount of money you need to retire depends on how much your expenses are likely to be and how long you plan to be retired.

As a general guide, a single person needs around £13,400 per year as a minimum, £31,700 for a moderate retirement and £43,900 for a comfortable retirement.

For couples this increases to a minimum of £21,600 a year, £43,900 for a moderate retirement and £60,600 for a comfortable retirement, according to Pensions UK.

Using a pension calculator can help you estimate roughly how much you’re likely to need.

Want to hear more tips?

Listen to our Investing Insiders Podcast episodes The True Cost of Retirement & How to Afford It with Pete Cowell and Can You Afford to Live to 100? (& Why You Need To) with Sarah Coles.

You pension income is made of several sources including:

Workplace pensions
A workplace pension is set up by your employer, who might also add to your pension contributions. There are two types of workplace pensions:

• Defined contribution: You and your employer contribute to a pension pot, which is invested in the stock market to grow your money.
• Defined benefit: You receive a specified amount of money each year when you retire, depending on how long you’ve worked at a company and your salary. (These types of pensions are much less common).

You can access your workplace from 55 and this is increasing to 57 in 2028.

Personal pensions and SIPPs
A self-invested personal pension (SIPP) is a type of pension that you set up and contribute to yourself.

You can open a SIPP from the age of 18, although parents and grandparents can open a Junior SIPP on behalf of their children and grandchildren.

Similarly with workplace pensions you can access your SIPP from 55 (increasing to 57 in 2028).

State Pension
The State Pension is a regular payment that most people can claim from the government when they hit a certain age (called the State Pension age).

Your State Pension age depends on when you were born and the system is a little bit complicated.

For most people, the State Pension age is 66, however, this is due to 67 between 2026-2028 and is likely to increase again in the future.

The State Pension is a regular payment that you might be able to claim from the government if you meet certain criteria.

Ultimately, it’s unlikely that the State Pension will cover your basic expenses during retirement.

That’s because you need a minimum of £13,400 to afford a minimum standard of retirement. According to estimates from Pensions UK.

Currently, the new State Pension is £230.25 per week (around £11,971.96 per year), which leaves a shortfall of £1,428.04.

From April 2026/27 the new full State Pension will be £241.30 per week (around £12,547.60 per year), which is still £854.40 under the recommended amount for a single person.

Taking steps to improve your pension income could help ensure you have enough money built up in your pension pot for retirement.

A few steps to help include:

1) Working out how much you might need
The best way to save for a comfortable retirement is to work out how much you’ll need to cover your expenses and lifestyle.

This gives you a clear target to work towards and guide how well your pension savings match up over the years.

Using a pension calculator can help estimate how much pension income you’re likely to have when you retire.

Keep in mind when making your estimates that today’s price is not yesterday’s price.

The cost of living is ever-increasing, which means that the price of goods and services today will likely increase by the time you retire.

For more tips check out our Investing Insiders Podcast episodes:

• How to Achieve Financial Freedom and Retire Early with Felicia Flinders
• The True Cost of Retirement & How to Afford It with Pete Cowell

2) Checking your State Pension forecast
It’s important to check your State Pension forecast to get an idea of how much State Pension you’re on track to get.

And help you build a more detailed picture of how much income you’ll have when you retire.

You can check your State Pension forecast on GOV.UK or on the HMRC app.

3) Topping up your National Insurance contributions
To qualify for the State Pension, you’ll also need to have paid at least 10 years of National Insurance (NI) contributions.

If you have missing NI contributions in a qualifying year, it won’t count towards your State Pension. However, you can make voluntary NI contributions to fill any gaps.

4) Claiming National Insurance credits
If you need to take time out of work to care for a child, an adult or due to illness, you might be able to claim National Insurance credits to help you qualify for the State Pension.

National Insurance credits help build up the number of qualifying years you have which could help you increase how much State Pension you qualify for.

5) Monitoring your pension performance

It’s important to monitor how your workplace pension, personal pension or self-invested personal pension (SIPP) is performing.

This helps you get an idea about whether your pension performance is on the right track.

Generally speaking, you should aim to check your pension at least once a year. You can do this by logging into your account on the pension provider’s website.

This will let you know the name of the fund your pension is invested in and how much it has grown by.

Once you have these details, you can use our pension performance checker to compare its performance and if you could get better returns elsewhere.

6) Tracking down lost pensions
Around £31 billion is sitting in unclaimed pension pots in the UK.

If you’ve lost touch with a pension, you can track it down using our free Pension Finding Service in partnership with Gretel.

It only takes a few minutes to register and start finding yours.

You can also use the Pension Tracing Service online at GOV.UK, via telephone or post.

For more tips check out our guide how to find your lost pension.

7) Consider expert financial advice
Pensions can get a little bit complicated, especially with the rules and allowances changing over time.

Speaking with a specialist financial or pensions adviser could help you get a clearer picture of what type of retirement you’re on track for.

Your adviser can also help you come up with a plan to ensure you have enough money to fund the lifestyle you want by the time you want to retire.