The Pensions and Lifetime Savings Association (PLSA) has launched Retirement Living Standard benchmarks that prescribe a £10,200 annual income as a minimum level for a single person to live, just £1,433 more than full state pension.
The standards are designed to help people picture the lifestyle they can expect in retirement from their pension and other savings.
Designed along the lines of the healthy food 5-a-day initiative, the three standards – minimum, moderate and comfortable – can be briefly summarised as 10k-20k-30k. For couples, the standards can be described as 15k-30k-45k.
Research for the PLSA shows 51 per cent of people focus on their current needs and wants at the expense of providing for the future and only 23 per cent of people are confident they know how much they need to save.
The standards aim to help savers overcome this challenge and give them more confidence about their retirement saving.
Matt Padley and Claire Shepherd from the Centre for Research in Social Policy (CRSP) at Loughborough University conducted independent research with the UK public based on the Minimum Income Standard developed by the CRSP for the Joseph Rowntree Foundation.
The new Retirement Living Standards describe three different standards of living with a basket of goods and associated costs for each – all established by what the public considers realistic and relevant expectations. The basket of goods is made up of household bills, food and drink, transport, holidays and leisure, clothing and personal and helping others.
Pitched at three levels: minimum, moderate and comfortable, the Standards have been designed to fill the gaps in current approaches and act as a practical and meaningful starting point on a saver’s engagement journey.
The PLSA wants the Retirement Living Standards to become a widely adopted industry standard, used in general information for their members, in annual benefit statements, or to develop personalised targets for their members’ pension planning.
The PLSA is working with the Money and Pensions Service to include Retirement Living Standards in their tools, such as the Money Advice Service pension calculator.
Minimum – £10,200 per year for a single person and £15,700 for a couple, the minimum living standard covers all your needs plus enough for some fun – including social participation and social occasions. For example, you could holiday in the UK, eat out about once a month and do some affordable leisure activities about twice a week. The good news is that through a combination of the full state pension of £8,767.20 per year, and auto-enrolment in a workplace pension, this level should be very achievable for most people.[ii]
Moderate – £20,200 a year for singles and £29,100 for couples. Provides, in addition to the minimum lifestyle, more financial security and more flexibility. Could give a two-week holiday in Europe and eating out a few times a month. Savers would have the opportunity to do more of the things they want to do.
Comfortable – £33,000 a year for singles and £47,500 for couples. Retirees could enjoy some luxuries like regular beauty treatments, theatre trips and three weeks in Europe a year.
PLSA director of policy and research Nigel Peaple says: “The Retirement Living Standards will support better saver engagement. They distil robust, in-depth research with the public into an easy to understand basket of goods that helps people picture the future – and relatable figures that can provide a powerful and practical tool for encouraging engagement with saving.
“A recent PLSA survey showed 76 per cent of people with a workplace pension agree that Retirement Living Standards would help them know if they were on track for the lifestyle they want in retirement.[iii]
“The PLSA looks forward to working closely with the pensions industry to ensure widespread adoption of the Retirement Living Standards to transform the way people think about saving for spending in later life.”
Guy Opperman, minister for pensions and financial inclusion, said: “We have transformed saving for retirement for millions of people and the next challenge is to make it easier for them to engage more with their pensions. It’s great to see what the PLSA has developed which has the potential to help savers think about the future and plan for the retirement they want.”
Jackie Spencer, senior policy and propositions manager, Money and Pensions Service, said: “Saving for something is easier to do when you can visualise what you’re working towards, which is why people are often more motivated to save for short-term goals like holidays and new cars than they are for their retirement.
“The new Retirement Living Standards are a great way of offering savers some practical examples of what they can expect from their lives when they stop working. The Money and Pensions Service has agreed to be an early adopter of the new standards and will be looking to incorporate them into pension guidance and our online pension calculator.”