Hargreaves Lansdown worked with Oxford Economics to assess how pension adequacy is currently measured and how each measure works for different groups.
Retirement saving success depends on the right adequacy target, new research suggests.
Hargreaves Lansdown has published a report ‘Pension Adequacy – June 2025’, which assesses how pension adequacy is currently measured and how each measure works for different groups.
This comes as the government prepares to launch the next stage of its Pensions Review, which will look at adequacy.
The review will consider the balance of all three pillars of the UK system – state, occupational and personal wealth – and how they should combine to ensure everyone can expect a financially secure retirement.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “Are we saving enough for retirement? If not, why not and what can we do about it? The answer depends on having a reasonable view on what adequacy looks like. Without it, we risk groups of people continuing to under-save and potentially receiving a nasty shock when they come to retire. Others could strive to hit a target that’s far too high, causing themselves unnecessary financial stress and potentially turning them off pension saving altogether. We need to define what those targets look like.
“It’s a vital issue at the very core of long-term saving success. The government’s upcoming assessment of pension adequacy will form the basis of its long-term thinking around pensions. The future direction of auto-enrolment and the state pension needs to be based on a firm foundation of the reality for retirees today.
“Right now, there isn’t a common approach, and people are left in the dark about what they need to save. Using the wrong measure could give people either the false hope they are saving enough or the misplaced worry that they’ve fallen way behind.”
HL worked with Oxford Economics to assess four key measures of adequacy and how they impact different groups.
Using data from its Savings and Resilience Barometer, Hargreaves Lansdown said that so-called ‘pounds and pence measures,’ such as the Living Pension and the PLSA’s minimum retirement living standard target, have around three-quarters of households achieving pension adequacy.
The analysis found this helps to show who is hitting minimum income targets but is not meaningful for wealthier households, because the targets aren’t reflective of their current living standards and could lull them into a false sense of security.
The analysis found that relative measures, such as the Target Replacement Rates (TRR), and expenditure benchmarks better account for the ability of households to maintain living standards into retirement. However, under these measures, higher earners can be seen to be under-saving, as they have a higher target to hit, while lower earners may have a much lower target.
The data also warned that housing costs need to be factored into any adequacy measure, because an increasing number of retirees will find themselves either renting or paying a mortgage into their retirement years and this will push up their costs.
However, it added that only current retirement expenditure and the Living Pension take any account of these costs.
As such, the report made a series of recommendations, which includes how relative measures should be adopted, because these best reflect the income needs of different groups when moving into retirement. The report added that this should come with an absolute minimum income underpin. It also recommended using TRR with an underpin of the Living Pension.
Finally, the report advocated for exploring the opportunity to incentivise voluntary contributions by encouraging employers to boost their own contributions for those employees willing to increase theirs.
