Aon UK DC tracker showed a significant fall from the previous quarter, falling 77.5 to 59.3 over the quarter from October to December 2023.
The Pensions and Lifetime Savings Association’s (PLSA) latest update to its Retirement Living Standards suggests higher outgoings are required in retirement across all three standards.
The requirements for a “minimum”, “moderate” and “comfortable” standard of living in retirement were outlined. The moderate standard has seen the biggest increase, requiring an extra £8,000 annually for a single person to reach this level of retirement living.
The Tracker dropped from 77.5 to 76.0 if the impact of the Retirement Living Standards modifications is taken out, caused by a decrease in expected future investment returns. But when the effect of the updated Retirement Living Standards is taken into account, the Tracker dropped even lower, to 59.3.
A reduction in projected future returns means that all members should get less from their private pension savings than at the beginning of the period. This would be the case both as they get closer to retirement and after they start using their funds.
Aon partner and head of UK retirement policy Matthew Arends says: “The latest updates to the Retirement Living Standards not only allow for price inflation but also expectation inflation where there is an increase in the expectations of what is required in retirement at each standard of living.Â
This expectation inflation was particularly apparent in the increase of the moderate living standard which increased by nearly 35 per cent and is now around 75 per cent of the comfortable living standard.
“While everyone’s expectations of what constitutes an acceptable standard of living in retirement will differ, this trend will inevitably require an increase in retirement savings. Savers should ensure they pay close attention to their pensions savings and consider whether additional savings may be required to achieve the living standard they want in retirement.
“The results suggest that our savers are expected to have a significantly lower standard of living in retirement than was expected at the end of the previous quarter. The latest update to the Retirement Living Standards has left our savers, on average, in almost the same position as when the Tracker was first introduced at the end of 2020.”