On 17th October 2019, the Pensions and Lifetime Savings Association (PLSA) published the new UK Retirement Living Standards, aiming to help people visualise their future retirement and understand what it might cost.
The PLSA is calling on the pensions industry to adopt these standards by 2025, to help individuals better engage with their retirement saving.
Their research shows a real need for this framework; with 77% of savers not knowing how much they will require in retirement and 51% focusing on their current needs at the expense of their future savings.
The new Retirement Living Standards have been arranged into three different levels: minimum, moderate and comfortable. All three levels are based on a basket of goods and estimate living costs.
The minimum living standard comes at a cost of £10,200 per year for a single person and £15,700 for a couple, covering all the basic needs and then a little extra for leisure. This would allow a holiday in the UK, eat out once a month and affordable social activities around twice a week. At the moment, the combination of a full state pension at £8,767.20 per year and auto-enrolment in a workplace pension means that this standard should be achievable for most people.
The moderate standard of living comes with greater financial security and more flexibility. The cost of this is £20,200 a year for a single person and £29,100 for couples. The difference is that at this level a two-week holiday in Europe and eating out a couple of times a month is possible.
The comfortable lifestyle costs £33,000 a year for singles and £47,500 for couples. This would allow retirees to enjoy some luxuries, such as beauty treatments and theatre trips, on top of three weeks in Europe per year.
The basket of goods and estimated costs are based on expectations that the public deems to be realistic and relevant. These costs may change dependant on other circumstances. For instance, most people reaching retirement do not have mortgage, rent or social care costs. Similarly, any additional tax on pension income should be added depending on the individual’s situation.
Breaking it down
- Minimum annual income £10,200 = State Pension + £1,433 pa. Pot needed at 68 = £47,300
Need to save average £86 per month between ages 22 – 68.*
- Moderate annual income £20,200 = State Pension + £11,433 pa. Pot needed at 68 = £377,000
Need to save average £685 per month between ages 22 – 68.*
- Comfortable annual income £33,000 = State Pension + £24,233 pa. Pot needed at 68 = £799,000
Need to save average £1,450 per month between ages 22 – 68.*
*Assuming: Full State Pension £8,767 receivable, index-linked annuity bought at age 68, average life expectancy and assuming figures keep pace with inflation. Please note these are not guaranteed.
The PLSA believes the Standards will help the pensions industry by:
- Bringing a set of robust standards, based on independent research with the UK public, for use across scheme communications and tools.
- Equipping schemes to further encourage savers to engage with their pension.
- Giving savers concrete information about costs in retirement to give them more confidence in planning to achieve their aspirations.
We believe that the Retirement Living Standards are a great initiative, not only serving to help individuals effectively plan for the future they want, but also helping us with our financial planning so that we can give you excellence.
If you would like any help with your retirement planning, or you would like to discuss any aspect of this article, then please get in touch with us now and speak to one of our financial planners.