Over half (57%) of UK pension savers are building up retirement savings outside of their pension, with a heavy reliance on cash raising concerns about long-term outcomes, research from Interactive Investor has revealed.

The investment platform found that adults were saving for retirement outside of a pension, using a mix of cash savings, stocks and shares ISAs, buy-to-let property and other investments to build long-term wealth.

While the trend points to broader engagement with retirement saving, the findings highlighted what Interactive Investor described as a “worrying” over-reliance on low-yielding cash for long-term goals.

Indeed, the research showed that people are more than twice as likely to save for retirement in cash (43%) than through a stocks and shares ISA (21%).

Among Interactive Investor’s own customers, the tendency to save outside a pension was even more pronounced, with 78% doing so, compared with 57% of the wider population.

Interactive Investor senior manager, Camilla Esmund, warned that the findings reflected growing pension disillusionment, driven in part by ongoing uncertainty around policy and regulation.

“The pension landscape has been firmly in the spotlight over the past year, especially in the months leading up to last month’s hotly anticipated Autumn Budget,” she said.

"Speculated reforms to the retirement landscape raised concerns over the future of pensions, potentially undermining them as an important tool for long-term financial resilience," but Esmund stressed that "this isn’t a recent phenomenon.”

Indeed, she argued that repeated changes to pension rules were eroding public confidence and discouraging long-term saving.

“It’s clear from our research that the constant tinkering of the pension rules is harming public trust in pensions, disincentivising retirement saving, and risks widening the glaring pension engagement gap we have in the UK,” Esmund added.

“Without urgent action to support savers, millions may reach later life without enough money to live comfortably.”

With this in mind, Esmund stressed that pensions remained a central pillar of retirement planning, citing benefits such as employer contributions, tax relief, tax-free growth, and the ability to take a 25% tax-free lump sum.

However, she warned that many savers were failing to make the most of these advantages and were instead turning to cash as a perceived safe option.

“It’s concerning that so many are opting to save in cash for retirement,” she said.

“Higher interest rates give the impression that cash savings are a good long-term option, but interest historically lags behind investment growth. This means the value of cash typically erodes over time.”

Esmund cautioned that while holding some cash was sensible, an excessive reliance on it could lead savers to miss out on the long-term benefits of investment compounding and materially weaken retirement outcomes.

Indeed, the research also highlighted the role of stocks and shares ISAs in supplementing pension saving, particularly among more engaged investors.

“For those who are comfortable with taking more risk, investing in the stock market can generate more long-term growth on their funds, benefiting from compound returns,” Esmund concluded.

“By using an ISA, they’re also shielding any growth and dividends from tax, helping their pot to grow quicker.”

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