For many people retiring today, retirement has followed a relatively familiar pattern as the past 50 or so years: finish work in your 60s, start receiving the State Pension and supplement it with a defined benefit pension. If you spent much of your career in a defined benefit, or final salary, pension scheme, it will likely cover a significant proportion of your lifestyle costs for the rest of your life, and provide for a surviving spouse or partner too.
For non-baby boomers, including your children and grandchildren, the picture is very different.
Defined benefit pensions are very rare in the private sector; they’ve closed entirely to new members, and only a small minority remain open to existing employees. Research from the Institute for Fiscal Studies shows that around 55% of employees born in the 1950s were active members of a defined benefit scheme in their early 40s, compared with around a third of those born in the 1970s. Younger generations will increasingly depend on defined contribution pensions, where the eventual retirement income depends on how much goes in, investment returns and how the money is managed in retirement.
The concern is that many simply aren’t saving enough.
The retirement savings gap
Automatic enrolment has been enormously successful in getting more people saving into pensions. But participation and sufficient savings are two different things.
The Government’s 2025 analysis of future pension incomes estimated that 43% of people could fail to achieve their target replacement rate, broadly the level of retirement income needed to maintain a reasonable proportion of their previous standard of living. It estimated that 73% could fall short of the Pensions UK estimate of Moderate Retirement Living Standard and 91% could miss the Comfortable standard.
The Office for Budget Responsibility reached a similar conclusion in its 2025 work on pension sustainability. It noted that recent studies suggest around 40% of working age people are undersaving against commonly used measures of retirement adequacy.
That matters because the amounts required for the retirement many people imagine are considerably higher than they might expect.
What does a decent retirement now cost?
The Pensions UK’s Retirement Living Standards mentioned above is based on research undertaken by Loughborough University, provide a useful benchmark.
The latest figures, published in June 2026, suggest that a couple needs:
- £22,500 a year after tax for a Minimum lifestyle,
- £45,400 for a Moderate lifestyle and
- £62,700 for a Comfortable retirement.
- For someone living alone, the respective figures are £13,900, £32,700 and £45,400.
These figures assume you own your home outright, so rent or mortgage payments need to be added where applicable. The Minimum level covers basic needs with some money for leisure. Moderate provides considerably more flexibility, including an overseas holiday and more opportunities for eating out and socialising. Comfortable provides greater freedom and spontaneity. But how you define what a minimum, moderate and comfortable may be different still.
The size of pension fund required too meet these costs can be eye opening.
For a couple receiving two full State Pensions, Pensions UK estimates that the Minimum standard could potentially be met without additional pension savings. To reach Moderate, it estimates each partner would need roughly £170,000 to £255,000 in a defined contribution pension if buying an annuity. For Comfortable, the equivalent figure rises to around £315,000 to £470,000 each.
Other calculations illustrate how sensitive these numbers are to the way retirement income is produced. Which? estimates that a couple might need a combined £332,000 to £389,000 for Moderate using drawdown, and £615,000 to £720,000 for Comfortable. Its annuity estimates are higher at the top end.
These aren’t targets everyone must follow. Your retirement is personal. They do, however, demonstrate the scale of capital potentially required to turn a pension pot into decades of income.
I have created my own Retirement Lifestyle Calculator to help you approach the question from the other direction. Rather than starting with an arbitrary pension pot, you can enter the essential, leisure and luxury spending you expect and estimate how much capital you might need to support it.
Try the Retirement Lifestyle Calculator for yourself here
For example, to build up a pot of £400,000 (the mid point for a comfortable lifestyle) an 18 year old today with no pension savings, working to 60 would need to only save £140 a month at a 7% pa investment return (a feasible rate with the benefit of long-term compounding and an appropriate risk level being taken).
But when you consider that, according to the ONS, the median size pension fund for people aged 55 to 64 in 2024 was only £133,800, there is clearly trouble brewing.
This isn’t only a problem for individual retirees
If millions of people reach their 60s without sufficient private resources, the consequences extend beyond disappointed retirement expectations.
The first issue is pressure on the public finances. The OBR says the State Pension already costs around £138 billion a year, approximately 5% of GDP and the second largest item of government expenditure after health. Its long term projections suggest State Pension spending could reach 7.7% of GDP by the early 2070s, driven partly by an ageing population. Other pensioner benefits create additional costs.
Poor private pension provision could leave more households dependent on the State Pension and means tested support, placing additional pressure on future taxpayers.
The second consequence is longer working lives. People who cannot afford to retire have little choice but to continue working. Research into the increase in State Pension age from 65 to 66 found that it increased employment among 65 year olds significantly.
It is tempting to assume that older people remaining at work automatically means fewer opportunities for school leavers and graduates. The evidence does not support such a simple conclusion. IFS research found no evidence that higher employment among older workers causes long term crowding out of younger workers. Economies do not have a fixed number of jobs. However, there can still be wider consequences from a society in which people remain in work because they have to rather than because they want to. Career progression, workforce planning and the type of jobs available can change. More importantly, financial necessity removes choice from later life.
It is better, then, to give the next generation the financial independence to decide when work stops.
Could you start solving the problem for your family?
If your own retirement plans are secure and you have surplus income or capital, one option is to help your children or grandchildren build pensions of their own.
You don’t necessarily need enormous sums. A child or grandchild with no earnings can receive pension contributions of up to £3,600 gross each tax year and qualify for basic rate pension tax relief. A contribution from a parent or grandparent of £2,880 can therefore become £3,600 after £720 is added in tax relief. If they are earning, larger contributions may be possible, subject to the pension tax rules and their circumstances.
Give that money decades to compound and the eventual value could become considerably larger, although investment returns are never guaranteed.
My Retirement Savings Calculator can help illustrate the other side of the equation, how today’s pension value, ongoing contributions, retirement age and assumed investment growth could affect the amount available at retirement.
Try my Retirement Savings Calculator to work out how much needs to be saved a month to reach a specific pot size based on different growth rates assumptions.
Pension contributions can also form part of estate planning
Helping younger generations with their pensions has another advantage for parents and grandparents who are concerned about Inheritance Tax. Everyone currently has an annual IHT gifting exemption of £3,000 so an annual pension contribution for family members can help reduce your taxable estate too. You can carry forward an unused exemption for one tax year, but note the £3,000 allowance is per donor, not recipient.
Potentially more valuable is the normal expenditure out of income exemption. Regular gifts can be immediately exempt from IHT where they form part of your normal expenditure, come from income and leave you with enough income to maintain your usual standard of living. There is no fixed monetary limit within those conditions.
Regularly funding pensions for children or grandchildren could therefore form part of a wider intergenerational planning strategy, although the pension and IHT rules need to be considered carefully and good record keeping is important.
Give them something more valuable than an inheritance
We often think about helping the next generation through house deposits or leaving an inheritance. We should also think about giving them something less tangible: time and choice.
Money invested into a pension for a child or grandchild today has potentially many decades to grow. Although it may feel a long way off for today’s ‘twenty-somethings’, let alone school leavers, it could eventually give them the freedom to reduce their hours, change career, retire earlier or simply reach their 60s without wondering whether they can afford to stop.
The next generation may not enjoy the defined benefit pensions that supported many of today’s retirees. They may live longer and will carry more responsibility for funding their own retirement. Within our own families, we may be able to make a meaningful difference. Helping a child or grandchild build financial independence could prove to be one of the most valuable legacies we leave.
