The Pensions and Lifetime Savings Association (PLSA) has set out the retirement living standards to help people visualise how much they need to save for their expected lifestyle in retirement. Since they came into existence in 2019, there’s been a pandemic, which of course, flipped the world upside down. And so, our friends at the PLSA had to sit down and reassess the standards, providing us with an updated version to suit the recent trends.

As well as the surge in inflation, spending habits have changed. For instance, people are spending more on eating out, and binge-watching Netflix has become a favourite pastime for people of all ages.

Some of the most common financial goals include paying off debts, getting on the housing ladder or paying off your mortgage, building up a savings pot, saving for a wedding or trip of a lifetime, retiring early or going part-time and building a pension pot.

Retirement is one of (if not THE) the biggest savings goals we all share. Yet, how do you know what the end goal is if you don’t have a rough idea of how much is enough for the retirement you want? Given the lack of freely accessible retirement planning guidance, it’s not a surprise that there are not enough people engaging with their retirement plans. But the PLSA and their updated retirement living standards are here to change the game and help close the retirement savings gap.

The retirement savings gap

At the moment, there is a significant gap between people’s retirement savings and the cost of their expected lifestyle in retirement.

In the past, the rule of thumb for retirement savings was that 10% of your gross income could fund a comfortable life in retirement. However, this is no longer the case. It’s unlikely the 10% will be enough, which requires you to be proactive about your pension savings to start bridging this gap.

According to Ageing Better, 5 million Brits are at risk of not having ‘adequate’ pension income. A report produced by the Pensions Policy Institute attributes these savings gaps to a low state pension, increasing unemployment and the transition workplace pensions that are heavily reliant on employee contributions.

The report also highlights that those aged 50 and over had the highest redundancy rate during the pandemic, and this age group is also most likely to struggle with long-term unemployment.

The updated PLSA retirement living standards

Let’s rewind for a second. We first talked about the PLSA’s retirement living standards at their inception in 2019.

However, a lot has happened since then, and people’s finances have taken a hit. But of course, peoples spending habits have also changed. In response, the Pensions and Lifetime Saving Association has updated their retirement living standards.

Quite like the importance of needing a financial planning review at least annually, the retirement living standards will need checking and updating regularly and spending patterns change, and inflation increases.

The main changes to the standards include:

The minimum retirement living standard

• The annual budget has risen by £700 to £10,900 for a single person and by £1,000 to £16,700 for a couple.
• This increase has been driven by the rising cost of transportation (road and rail, not privately-owned vehicles), which increased by an average of 10% between 2019 and 2021. An increase in the budget for hairdressing, from £15 to £25 for women and £8 to £10 for men. And the addition of Netflix at £72 a year.

The moderate retirement living standard

• The annual budget has risen by £600 to £20,800 for a single person and by £1,500 to £30,600 for a couple.
• The rise has partly been driven by an increase in the budget for eating out. It is gone from £75 per person per month to £100 per month. Secondly, the social activities budget increased from £35 to £50 per week. Lastly, there’s been a 7.5% increase in Council Tax between 2019 and 2021. Netflix adds a further £72 per year. And inflation across leisure services and goods have added an extra £246 a year for one person and £340 for a couple.

The comfortable retirement living standard

• The annual budget has increased by £600 to £33,600 for one person and by £2,200 to £49,700 for a couple.
• The increase has largely been driven by council tax inflation. Inflations of leisure goods and services, adding £355 per year for one person and £623 per year for a couple. And an increase in the budget for hairdressing, food and drink celebrations and an additional cost for maintenance and servicing of a burglar alarm.

Breaking it down 2.0

• Minimum annual income £10,900 = State Pension + £1,561 pa. Pot needed at 68 = £40,050

Need to save an average of £36 per month between ages 22 – 68.*

• Moderate annual income £20,800 = State Pension + £11,461 pa. Pot needed at 68 = £295,000

Need to save an average of £265 per month between ages 22 – 68.*

• Comfortable annual income £33,600 = State Pension + £24,261 pa. Pot needed at 68 = £623,500

Need to save an average of £560 per month between ages 22 – 68.*

*Assuming: Full State Pension £9,339 receivable, index-linked annuity bought at age 68, average life expectancy and assuming figures keep pace with inflation. Please note these are not guaranteed.

Here are some additional resources to help you on your retirement planning journey:

• Read our article here to find out more about how to boost your pension savings
• To make the above calculations, we used the Which pension calculator. A tool that helps you understand how much your pension will be worth at retirement and what income you will get.
• For more on the PLSA’s updated retirement living standards and the supporting research, view the PLSA’s website here.
• While you’re starting to think about your retirement planning, you might benefit from our beginner’s guide to retirement planning.
• If you’d like help with your retirement planning, you can find out how we can help here.

If you have any questions or would like to discuss planning for your desired lifestyle in retirement, please don’t hesitate to get in touch and speak to one of our independent financial planners.