Almost nine in 10 UK households are expected to cover essential retirement spending through a combination of the state pension and an inflation-linked annuity bought with their pension savings, analysis by Hargreaves Lansdown and Oxford Economics has suggested.

The report found 90% of households could meet expected essential costs in retirement, including housing, food, clothing and essential travel. Pension adequacy was strongest among lower earners, with 95% expected to cover essential spending, compared with 87% of higher earners.

However, Hargreaves Lansdown modelling showed that affordability falls steeply without the state pension, with only 42% of households projected to meet essential spending needs using private pension wealth alone.

"The state pension continues to do much of the heavy lifting when it comes to pension adequacy," the report said.

The analysis also found retirement spending typically declines over time, although the reduction varies by income level and household type. Spending among lower-income households was estimated to fall by 2.1% between ages 65-74 and 75-87, while higher-income households saw a larger 5.3% decline as discretionary spending reduced. Couples recorded steeper spending declines than single households due to shared essential costs and greater flexibility to cut non-essential expenditure.

The report argued that retirement income choices play a significant role in maintaining living standards. It estimated that only 56% of households would meet spending targets using a conservative drawdown approach, while 72.5% could initially meet spending needs through a level annuity, although inflation may reduce purchasing power over time. Inflation-linked annuities were estimated to support 61% of households in maintaining spending levels, while hybrid approaches combining drawdown and annuities offered a more balanced long-term outcome.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “Nearly 90% of households will be able to cover their essential spending in retirement, but if you want a retirement filled with more than just the essentials and maintain your quality of life then you will need to put more into your pension.”

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