The average worker is on course to miss their target annual retirement income by £12,000, according to new research.

Pension savers hope to retire on an annual income of £48,868 including the full state pension but will fall short by around a quarter, according to the research from Royal London.

A 22-year-old worker with a starting salary of £24,000, making the minimum 8% pension contributions (from the employer and the employee) receiving a 2.5% annual pay rise and annual compounded investment growth of 5% after fees would leave the workforce at age 67 with a pension pot of approximately £468,000.

If they had been paying in since day one. Including the State Pension, this would provide them with an annual retirement income of approximately £36,600 – £12,200 short of the desired £48,8682. 

However, the research suggests that many Britons are aware of the shortfalls they are facing.

Three in five (60%) of workers surveyed by Royal London thought they were either not saving enough for retirement, or did not know if they were saving enough.

Close to half (48%) of workers surveyed assessed a workplace pension as the most important company benefit other than salary. But many were not using their workplace pension to its full effect.

Some 11% who were offered the option of their employer paying more than 3% into their pension if they boosted their own personal contributions at the same time were not using the incentive.

The research also underscored concerns around the gender pension gap, with men surveyed by Royal London twice as likely to have a personal pension than women (34% vs 16%).

Clare Moffat, pension and tax expert at Royal London, said: “There are many reasons for the gender pension gap, including lower salaries among women, higher levels of unpaid caring responsibilities and the effect of the menopause.  

“However, taking advantage of financial incentives such as employer contributions and salary sacrifice can help. Even small increases in your monthly contributions can have a dramatic increase in the pot you retire with.”  

• Royal London surveyed 4,000 adults in July and August 2024.