Britons are making "a lot of bad decisions" regarding their pensions, as research shows that 15.3 million people today are at risk of retirement poverty.

Yvonne Braun, director of policy for long-term savings, health and protection at the Association of British Insurers (ABI), warned the Work and Pensions Committee that a combination of hasty withdrawals and poor financial planning was exposing pensioners to unnecessary risk.

"There are quite lot of poor decisions being made in terms of people taking their money out, maybe in totality — and paying too much tax — or take the money out and put it into a bank account, which is mad.

"It is just mad [withdrawing into a bank account], because they think it’s more tangible. All understandable, but we certainly know there are a few bad decisions being made.”

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Her remarks come amid growing evidence of inadequate retirement preparation across the UK. According to a recent report from Scottish Widows (LLOY.L), 15.3 million people are now at risk of falling into poverty in retirement — a figure that has risen sharply as inflation and the cost of living continue to outstrip pension savings.

The insurer’s latest findings reveal that 39% of UK adults are not on track to afford even a minimum standard of living in retirement, up from 35% in 2023. The average projected retirement income has risen from £15,500 to £17,200 over the past year, but much of this increase has been eroded by rising prices.Some 15.3 million people are now at risk of falling into poverty in retirement, according to a recent report from Scottish Widows.·Marina113 via Getty Images

Chris Curry, director of the Pensions Policy Institute, told MPs that a significant knowledge gap is also contributing to sub-optimal retirement decisions.

"These were people in the 70-80 age bracket. They didn’t really understand how long they might live for, or always misunderstood the longevity risk associated with it. They didn't really understand investment and inflation; they wanted some certainty in their income but didn’t want to buy an annuity.

"People are tending to try and avoid making decisions for as long as they can and sometimes that leads them to having sub-optimal retirement options," he told MPs.

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A study from the International Longevity Centre underscored the potential value of professional financial advice, showing that individuals who seek guidance can boost their overall wealth by as much as £40,000.

Financial experts typically recommend that savers aim to accumulate four times their annual salary by age 45 and eight times by 60 in order to replace around two-thirds of their income in retirement — a level often sufficient to maintain a pre-retirement lifestyle, given lower outgoings.

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However, younger generations are struggling to meet these targets. Scottish Widows’ report found that 42% of people in their twenties are at risk of poverty in retirement, while nearly a quarter will only afford a minimum lifestyle.

Competing financial priorities are playing a major role — a quarter prioritise emergency savings, while 13% are unable to save at all. Holidays and house deposits often rank higher than pension contributions.

Low-to-middle income earners are similarly affected. Those earning between £20,000 and £35,000 in their 30s are the most likely to contribute only the minimum 8% under the UK’s auto-enrolment scheme — far below what is needed for financial security in later life.

Pete Glancy, head of pensions policy at Scottish Widows, called on the government to act swiftly.

“Our research couldn’t be more timely, spelling out just how crucial targeted measures are in preventing millions from living in retirement poverty in the coming years.

“The second phase of the Government’s Pensions Review must be broad enough to take a holistic view on people’s financial journey through life considering wide-ranging financial goals. There are three key areas that must be addressed urgently: auto-enrolment, self-employed contribution rates and housing, considering both home ownership and affordable housing.”

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