The UK is facing a “serious retirement readiness gap”, according to research from Barnett Waddingham, which found that men are likely to live four years longer than they expect, while women are underestimating their lifespan by a “staggering” seven years.

The firm warns that this could leave many, especially women, facing severe financial shortfalls in later life.

The analysis, based on Barnett Waddingham’s At Retirement Reckoning report and proprietary actuarial models, showed that most individuals expect to live until around age 82 but actuarial models show they are likely to live significantly longer.

These misjudgements are "concerning" against a backdrop of existing retirement disparities, with the firm’s earlier research finding a 14.8 per cent ethnicity pay gap for Black Britons and financial insecurity among LGBTQ+ individuals, despite higher expectations for retirement and a push for more personalised pension support.

The firm said the misjudgement in lifespan has “major financial implications” as if someone plans to draw £5,000 a year from their private pension (on top of the state pension) and assumes a 17-year retirement from age 65 to 82, they will aim to have saved around £85,000.

However, if they live to 86, as many men will, they will need £105,000, while for women likely to reach 89, the requirement jumps to £120,000.

This creates a shortfall of £20,000 for men and £35,000 for women assuming modest income expectations. 

The analysis showed that it is more “concerning” for women’s pension savings as on average, women retire with “significantly” smaller pension pots than men with many managing to save around £50,000 by the time they retire.

Therefore, if they end up needing £120,000 to sustain them through retirement, they face a £70,000 gap, which the firm said leaves them “dangerously exposed” and potentially far more reliant on state support later in life.

Barnett Waddingham said that the disparity in life expectancy between men and women is a key part of the problem as men and women tend to assume they will live for roughly the same amount of time, but women typically outlive men by around three years.

The firm said given these longer lives and smaller savings, women face a “uniquely challenging” retirement landscape.

The analysis suggested that even those with defined benefit (DB) pensions, which are seen as the most generous and stable form of retirement income, are not immune.

Despite DB scheme members tending to live longer than average, the analysis showed that they are also underestimating their longevity and under-planning their financial needs.

The firm said that the comfort of a DB scheme may be masking a deeper issue: nobody can plan well if they don’t understand what they’re planning for.

Barnett Waddingham associate and senior longevity actuary, Jack Carmichael, said the gap between expectations and reality on life expectancy is yet another “seismic hurdle” in the way of solving the gender pensions gap.

Carmichael noted that millions of savers are heading into retirement with “unrealistic expectations and inadequate savings”, with women, in particular, facing a “perfect storm”: longer lives, smaller pension pots, and a far greater risk of running out of money.

"We do see women often increasing contributions in later life, presumably to catch up on shortfalls. But these contributions are generally not high enough,” he emphasised.
 
“The earlier people can plan, educate themselves on life expectancy, and increase their contributions, the better.”

Carmichael suggested that older women might benefit from working longer or re-entering the workforce, if possible, to increase their retirement savings and ensure they last.

He also said that if they have both a DB and a defined contribution (DC) pension, it may be "sensible" to postpone accessing one of them or to think about annuities.

He also stressed the importance of financial advice, stating: "If there is ever a turning point to consider financial advice, it's now".

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