Retired pensioners will now need to find an additional £8,000 a year to enjoy a ‘moderate’ standard of living according to the revised Retirement Living Standards (RLS) published by the Pensions and Lifetime Savings Association.
The PLSA estimates pensioners need to £31,300, before any housing costs, to enjoy just a ‘moderate’ standard of living in retirement, raising fears that many are on track for a more impoverished old age. This estimated income has increased by almost a third.
The PLSA has updated its ‘minimum’, ‘moderate’ and ‘comfortable’ retirement living standards — to take into account the higher cost of living, in particular higher food and energy costs as well as people changing priorities post pandemic, which includes more socialising with friends and family.
The retirement living standards have been designed to help people understand how much income they will need in retirement, and are increasingly used across the pensions industry as a planning tool.
These revised figures take into account what people might spend on essential bills, such as food, energy and transport, holidays and a social life. They do not include any housing costs on the assumption that people will be living in homes where the mortgage has been repaid – although evidence from across the pensions industry, including a recent Pensions Policy Institute (PPI) suggests that this is rapidly changing.
Overall the cost of a ‘minimum’ retirement standard has increased from £12,800 to £14,400 for a single person, or £19,9000 to £22,400 for a couple. The moderate retirement living standard has risen from £23,300 to £31,300 for a single person and from £34,000 to £43,100 for a couple.
Meanwhile the ‘comfortable’ living standard has risen to £37,300 to £43,100 for a single person and £54,500 to £59,000 for a two-person household.
These figures are UK-wide and don’t reflect the cost-of-living in London for which the PLSA calculates a higher figure.
The moderate level has increased the most in percentage terms. The PLSA said that aside from higher food, household energy and motoring costs this level also saw changes in the expectations of what should be included at this level.
In-depth discussion groups, with member of the public from the across the UK considered that at the ‘moderate’ level people should be able to help their family members financially with a budget of £1,000 (e.g. to assist with the cost of grandchildren activities), as well as an additional £100 per month to take family members out for a meal. This was considered particularly important in the context of the cost-of-living crisis.
These figures are calculated by the Centre for Research in Social Policy at Loughborough University on behalf of the PLSA.
The industry says these updated figures will be an important wake-up call for many. Royal London consumer finance specialist Sarah Pennells pointed out that its own research shows that three out of 10 people expect to be paying either rent or mortgage when they retire, but these Retirement Living Standards don’t take housing costs into account. “Someone who still has a mortgage or rent to pay could need several thousand pounds more a year in order to pay everyday bills.”
She adds: “For a moderate standard of living, as defined by the Retirement Living Standards, there’s an £8,000 a year increase in how much income someone would need every year. Saving enough to generate an extra £8,000 a year will be difficult for many, and impossible for those closer to retirement.”
She also says that these figures show that for those who can only achieve a minimum income the reality is that this means very few treats, such as nights out, or holidays. “For some this means having to watch every penny. That’s unlikely to be the kind of existence most people would like as a reward for a lifetime of working.”
Scottish Widows head of pensions policy Pete Glancy says: When looking at the updated figures from the PLSA, it’s important to understand how they affect people saving for retirement. Securing a guaranteed annual income of £23,300 for life would require a pension pot of about £500,000. However, securing an income of £31,300 requires a pension pot of over £750,000.”
He says this highlights the urgency for the Government to establish a Retirement Commission, to look at all of the aspects of retirement planning in the round, which would include the number of people now paying a mortgage or renting in retirement.
Former pensions minister and LCP partner Steve Webb says: “These latest estimates of the budgets we will need in retirement are a wake-up call to government and the pensions industry alike.
“Despite a significant increase in the state pension last April, the state pension rate is actually further away from providing a decent minimum standard of living now than it was a year ago. Meanwhile the cost of a moderate lifestyle in retirement has surged by nearly one third.
“Yet at the same time the government is still dithering about whether and when to implement a set of modest increases to the amount being saved into pensions under the automatic enrolment rules. Without urgent action we are likely to see more and more people facing an unenviable choice between an extended working life or a poor retirement”.
Phil Brown, director of policy at People’s Partnership, provider of The People’s Pension, said: “The vast majority of workers have been impacted by the rising cost of living, meaning many might not be going to get the retirement they had hoped for.
“It’s worth remembering that because of automatic enrolment, more people than ever before are saving into a pension, although we do know that 4 in 10 aren’t saving enough. It’s important that a broad consensus is reached about how we can tackle the issue of undersaving.”
The PLSA director of policy and advocacy Nigel Peaple adds: “The cost-of-living has put enormous pressure on household finances over the last year and, as the research shows, this is no different for retirees.”
He adds: “It is also worth highlighting that a couple who each has a full entitlement to the state pension will achieve the ‘minimum’ level, and if each is paid average earnings throughout their working life, they have a good chance of enjoying many aspects of the ‘moderate’ living standard. Working and saving is likely to vary over a lifetime, for example taking time off to have children, so it is important to adapt workplace pension contributions to make up for periods not saving.”
He adds mpension providers now provide tools and calculators on their online platforms to allow savers to pick-and-mix elements of each Retirement Living Standard, allowing them to leave out the things they don’t see as part of their life and tailor the standards to their individual circumstances and preferences. This could include factoring in ongoing housing costs post retirement.