Millions of Britons heading into retirement are underestimating both how long they will live and how much it will cost them, according to new findings that point to a widespread shortfall in financial preparation. Research by Standard Life reveals that 17% of retirees say they did not budget enough for their later years, while 16% admit they had not expected retirement to last as long as it has. The figures underscore a broader problem identified by the Pensions Commission, which estimates that 15 million people in the UK are currently undersaving for retirement — a number that could balloon to 19 million without action.
The scale of underpreparation is stark. The Pensions Commission, which published an interim report earlier this month, warned that many savers face a “severe cliff-edge” when they stop working. Among the self-employed, the situation is especially acute: only 4% of those who rely solely on self-employment income are saving into a pension, a participation rate that has fallen sharply over time and which the commission described as a “ticking timebomb”. Meanwhile, the self-employed population has seen a drop in real-terms income, compounding the difficulty of putting money aside.
Once people reach retirement, their habits around accessing savings add another layer of concern. Standard Life found that roughly 30% of private pension pots are tapped at the earliest possible opportunity, and around half of those are withdrawn in full. Nearly half of that money is spent on large, one-off purchases such as cars, holidays or home improvements. Financial planners warn that this approach can deplete resources too quickly, leaving retirees exposed later in life when costs — particularly for care — may rise again.
The challenge is compounded by the fact that fewer than 9% of Britons use a financial adviser, meaning most people are navigating these decisions alone. Against this backdrop, two Chartered financial planners — Roger Clarke of The Private Office and Megan Rimmer of Quilter Cheviot Financial Planning — outlined the critical questions savers should ask themselves, with the most detailed advice reserved for a single, essential task: understanding and keeping track of every pension pot.
Find every pension pot you own
“The first thing I’d do is identify the assets that I have, where are my pensions, and what are they invested in?” Rimmer said. “So many people have got pots here, there and everywhere, and they don’t know what their value is or what they’re invested in.” The urgency of that advice is backed by hard numbers. An estimated 3.3 million pension pots are now considered lost, holding a combined £31.1 billion — an increase of 60% since 2018. The average lost pot is worth £9,500, but for those aged 55 to 74 — closest to retirement — the average lost pot value rises to £13,620. Failure to update contact details is among the top reasons pots go missing.
The problem is fuelled by modern working patterns. According to LV, the average British worker changes jobs every five years and will hold between nine and 12 jobs over a lifetime. Each move creates a new pension pot that can easily be forgotten. The government offers a pensions tracing service, and the free service Gretel can also help locate lost financial assets. Pension providers are required to connect to a new dashboard ecosystem by October 2026, with a public launch expected later this year, which should eventually make it easier for savers to see all their pots in one place.
Rimmer and Clarke stress that knowing what type of pension you hold is just as important as knowing where it is. Defined benefit (DB) schemes — often called final salary or career average pensions — guarantee an income for life based on salary and years of service. These are typically less risky because the employer covers any shortfall, but they are becoming rarer. Clarke described DB schemes as “gold dust” and warned: “It’s important to not lose track of those, because they can easily disappear into the ether if you’re not careful.” Defined contribution (DC) schemes, now the most common type of workplace pension, depend on the total contributions made and the performance of investments. They carry no guarantee of returns and place the investment risk squarely on the saver.
Modern DC schemes usually offer full flexibility: you can draw a flexible income, purchase an annuity for guaranteed income, or take lump sums. But Rimmer pointed out that “some older pension schemes don’t offer that, which is important to know.” Savers should check with scheme administrators, who are obliged to keep them informed. If you haven’t heard from a scheme in a while, it is worth contacting them directly.
Beyond private and workplace pensions, the state pension is a foundational element of retirement income that is frequently overlooked. The full new state pension for 2025/26 is £11,973 per year. For couples where both have 35 qualifying years, the combined entitlement can reach approximately £460.50 per week — about £23,967 annually. Rimmer cautioned that individuals, particularly women, may not have the full number of qualifying years. Anyone who falls short while still working can make additional voluntary contributions (AVCs) or pay National Insurance contributions (NICs) to fill gaps.
How withdrawal habits can derail retirement
Standard Life’s research suggests that the way people access their savings is one of the biggest risks to long-term security. Nearly a third of private pension pots are accessed at the earliest possible age — currently 55, rising to 57 in April 2028 — and half of those are taken entirely. The money is then spent on big-ticket items rather than being reinvested or spread across the retirement years. Financial planners warn that this behaviour reflects a misunderstanding of how long retirement actually lasts. A single person today needs between £13,400 a year for a minimum lifestyle and £43,900 for a comfortable one, according to the Retirement Living Standards. For couples, those figures rise to £21,600 and £60,600 respectively.
The “smile” model of retirement expenditure — described by Clarke — shows that discretionary spending tends to be highest in the early, active years of retirement, then tails off, before potentially climbing again if long-term care becomes necessary. Drawing down too much too early can leave a shortfall precisely when costs may spike again.
Planning advice: start early, budget properly, use tax advantages
Both advisers recommend beginning serious retirement planning in your 40s, when earnings are typically higher and major financial commitments such as school fees or mortgage deposits may be behind you. With the state pension age set at 67 or 68 — it is currently 66, rising to 67 between 2026 and 2028, and to 68 between 2044 and 2046 — starting to plan 20 to 25 years ahead feels relevant without being overwhelming.
When it comes to reviewing investments, both advisers suggest doing so at least five to seven years before your hoped-for retirement age. This gives time to identify any shortfalls and make adjustments — whether by saving more, taking additional investment risk to boost returns, or restructuring assets into more tax-efficient accounts.
Budgeting is central to that process. Rimmer advises categorising expenditure into three groups: basic (household bills, mortgage, food), discretionary (clothes, eating out, leisure), and holidays, which should be mapped out separately to cover both annual trips and smaller weekend breaks. Rather than asking “how big is my pension pot?”, the better question is “what level of income will support the life I want?” A cashflow planning tool, used ideally five to seven years out, can model different scenarios and flag potential gaps.
Tax efficiency is another critical factor. Pensions remain one of the most tax-advantaged savings vehicles available. Contributions receive tax relief at the saver’s marginal rate, meaning a higher-rate taxpayer could see a £10,000 contribution cost only £6,000 after relief. Employer pension contributions are an especially efficient way for business owners to extract money from their company. The annual pension allowance is £60,000 or 100% of salary, whichever is lower.
ISAs, by contrast, offer no upfront tax relief but allow tax-free growth and withdrawals, with an annual limit of £20,000. Lifetime ISAs (LISAs) are available to adults under 40, allowing contributions of up to £4,000 a year with a 25% government bonus. Funds can be accessed penalty-free at age 60, for a first home purchase, or if terminally ill; other withdrawals incur a 25% charge. Many savers benefit from using both pensions and ISAs — pensions for long-term growth and tax relief, ISAs for flexibility and access before pension age.
Clarke noted that pension contributions are particularly attractive for higher-rate taxpayers, because “most people, whether they’ve got a personal or a workplace pension plan, they’re paying in and getting relief at the higher rate. But then when they retire, in most cases they’ll go from being a higher-rate taxpayer to a basic-rate taxpayer.” For business owners, he said, there is no more tax-efficient way of getting money out of a company than paying employer pension contributions.
Retirement itself is no longer a binary switch from working to not working. Many people now phase out of work, reducing hours or moving to part-time roles. Clarke warned against relying on crude estimates — such as the common rule of thumb that retirement spending will be 60% to 80% of working-life outgoings. “Many of these estimates can be quite crude,” he said. “You may no longer have to buy a season ticket, expensive sandwiches or suits for work, but for some their expenditure will increase because they think, ‘right, I’ve retired, now I want to do all the travelling I’ve ever wanted and buy myself a nice car’.”
With so many pots scattered across providers, and millions of people navigating retirement without professional advice, the single most important step — one that too many retirees fail to take — is simply knowing what you have, where it is, and how it can be accessed. Until that is done, any plan for the years ahead rests on uncertain foundations.
