Britain’s top-earning households could be heading into retirement with far less money than they expect. New figures show the richest fifth of households — those earning more than £87,000 a year — face an average pension shortfall of £64,800. The gap has almost doubled in just a few years, up from £35,786 between 2018 and 2020, according to analysis by Oxford Economics and investment platform Hargreaves Lansdown.
The findings suggest that even higher earners, who often assume their savings are on track, risk a serious drop in living standards once they stop working. Rising costs, underwhelming pension fund performance and low contribution levels are all playing a role.
Retirement Costs Outpacing Savings
The report is based on the assumption that retirees withdraw 4% of their pot each year, a rule of thumb often used by advisers. But as living costs continue to climb, and people live longer, that benchmark is looking increasingly fragile.
Government guidelines suggest higher earners need around half their pre-retirement income to live comfortably, compared with about 80% for lower earners. The state pension covers much of that for those on modest wages, but wealthier households depend heavily on private savings — and many are not putting away enough.
Auto-Enrolment Leaves Gaps
Part of the problem is how auto-enrolment works. Staff and employers must contribute at least 8% into a workplace pension, but this is only based on “qualifying earnings” between £6,240 and £50,270.
That means the headline numbers can be misleading. Marianna Hunt of Fidelity explained: “Someone earning £80,000 might assume £6,400 is going in every year. In reality, contributions could be just £3,522.40. It’s a crucial detail that often gets overlooked.”
Helen Morrissey of Hargreaves Lansdown said: The government should look at stronger incentives to encourage wealthier savers to go beyond the minimums.
Savers Accessing Pensions Early
Another trend is adding to the pressure. Many over-55s have been dipping into their pensions early, often taking the 25% tax-free lump sum. Gary Smith at Evelyn Partners said the money is being used to pay down mortgages as interest rates rise, to help younger family members with bills, or simply because people fear the rules might change.
Those fears are not unfounded. From 2027, private pensions will be counted in inheritance tax for the first time, making them less attractive as a way of passing on wealth. “The move has fuelled demand for early withdrawals,” Smith added.
Political Jitters Over Pension Policy
Speculation over tax reform is also unsettling savers. Chancellor Rachel Reeves’s new adviser, Torsten Bell, has previously argued for capping the tax-free lump sum at £40,000 — a change he claimed could raise £2 billion a year. Treasury officials insist sweeping reform is unlikely in the autumn Budget, but with pensions now firmly in the spotlight, few are ruling anything out.
The message from the research is clear: high earners cannot assume their retirement is secure. With living costs rising, auto-enrolment limits holding back contributions and tax changes on the horizon, experts say many households will need to save far more — or face a sharp fall in living standards when they retire.
