Rising prices have added almost 20 per cent to the “minimum” cost of retirement in the past year, according to new data from the Pensions & Lifetime Savings Association (PLSA).
People on the minimum lifestyle have experienced the largest percentage increase in the cost of their retirement, according to the latest inflation update of the PLSA retirement living standards. This is because a larger portion of their budget is allocated to the items that have increased in price the most such as food and energy.
Now: Pensions head of campaigns Samantha Gould says: “The UK’s cost of retirement crisis is growing bigger by the day. Underpensioned groups are already at real risk of falling short of a basic quality of life in retirement. These stark figures from PLSA show the people most exposed to financial struggles in retirement are now having to bear the brunt of soaring food and energy bills. The numbers simply don’t stack up to anything like an acceptable outlook for our ageing population.
“Our own research with the Pensions Policy Institute (1) highlights that some of the UK’s most financially-at-risk groups – including divorced women, people from ethnic minority backgrounds and people with disabilities – have suffered a decade of decline in their private pension income. We estimate 8.6 million people are missing out on workplace pension savings, including nearly one in five working women.
“The current climate presents major challenges for policymakers, but there is a desperate need to take practical steps towards a pensions system that is fair for all. Now: Pensions has put forward policy proposals (2) that would help over 3 million more people benefit from workplace pensions and boost the nation’s pension contributions by £1.2bn a year.”
Aviva Director of Workplace Savings & Retirement at Aviva (and PLSA, Chair) Emma Douglas says: “The PLSA targets continue to provide a simple and helpful framework to guide retirement planning.
“The amounts by which each income level has risen is a timely reminder of the importance of factoring the impact of inflation into retirement planning, to ensure that living standards are maintained throughout retirement.
“Record levels of inflation mean the cost of retiring, as well as the cost of living, is at an all-time high. Pension pots that might have sustained a target living standard in retirement might now fall short, meaning that today’s retirees might consider rethinking retirement plans.
“Employees approaching retirement without the pension pot they would like, could reduce their hours rather than fully retiring. This could be a win-win for employers and employees. Employers keep experienced staff and employees boost their pension contributions and are less reliant on their pension fund. Those who have taken early retirement might consider returning to work part-time, to reduce the amount they need to take from their pension.
“The industry can help by providing modern pension solutions that are flexible enough to meet members’ changing needs. This might include giving members the right to partial retirement and allowing members to take their benefits while remaining with their current employer.
“Longer-term, reform of automatic enrolment (AE) regulations is needed to improve adequacy. The PLSA’s recommendations – Five Steps to Better Pensions – will help form a new national consensus on how best to build upon a decade of AE success so everyone can achieve the right income in retirement. The combined successful implementation of these recommendations could make a huge difference to the retirement income of today’s savers.
“Now, in the middle of a cost-of-living crisis, is not the time for radical change but by providing a clear ‘roadmap’ for reforms, the government will give employers and pension savers time to plan, which will help to ensure better retirements.”
The People’s Partnership director of policy Phil Brown says: “These revised figures from the PLSA are further proof, if needed, that few are immune from the cost of living crisis. Our own research has previously shown that through pension saving alone, only 18 per cent of the population would achieve a moderate standard of retirement while 4 per cent would enjoy a comfortable retirement, and it is highly likely that number has reduced in recent months.
“This, coupled with the fact that the current situation has impacted the lowest earners the most, means that Automatic Enrolment is more important than ever before. Once we are through the worst of the current crisis, it is vital that not only are the recommendations in the 2017 Automatic Enrolment implemented, but that there is a meaningful conversation around the future objectives of a policy, which has already brought nearly 11 million more people into pension saving.”