Reaching the “comfortable” level of the PLSA Retirement Living Standards requires an annual DC pension payment of 20 per cent for those making £45k or more, according to an analysis by Hymans Robertson.
The research found that most DC pension scheme members are likely to meet the PLSA Minimum Retirement Living Standard of £10,900 p.a. with the current minimum total contribution rate of 8 per cent under auto-enrolment, assuming they are entitled to the full state pension.
But the PLSA’s moderate standard of £20,800 looks to be out of reach for the majority of auto-enrolled members, reveals Hymans. It determined the likelihood of satisfying each of the PLSA standards for various combinations of pay using its Guided Outcomes modelling.
According to Hymans, those making £15,000 have little prospect of living up to the modest norm. In order to have a decent chance of fulfilling this level, those making £30,000 must contribute at least 13 per cent of their income, which is significantly more than the current AE minimum total contribution rate of 8 per cent
Those making £50,000, would have to give roughly 17 per cent of their income to maintain a good standard of life. It’s quite improbable that people who want to contribute only the required minimum of 8 per cent toward their pension at retirement will have enough money to live comfortably.
Hymans Robertson lead digital consultant for DC pensions Darren Baillie says: “Our research paints a worrying picture for pensioners and future pensioners. The PLSA Retirement Living Standards are a guide to the level of spending required to fund different standards of living in retirement. The expected standard of living of many members will not be met without significant, and costly, changes.
“While our analysis provides a stark warning to DC scheme members about the potential inadequacy of their contributions, we know many are struggling with the cost-of-living crisis. Increases in energy bills and mortgage payments are likely to result in pension contributions being pushed further down the savings priority list.
“It’s vital that government does more to help. We would like to see an overhaul of the current auto-enrolment legislation, with much more done to encourage individuals to forward plan and invest in their pension, even during challenging times. We continue to call for the AE minimum total rate to be increased to 12 per cent and would urge the new pensions minister to add this to the top of their to-do list.
“We would urge employers to do all they can to ensure their members are aware of the importance of contributions and provide support to help them set realistic and achievable retirement income targets. Furthermore, providing members with the means to monitor progress against their targets and understand how their goals can be achieved is vital in helping a generation avoid a rude awakening in retirement.”
