Many people are not saving enough for their retirement, according to the Pensions UK’s updated Retirement Living Standards (RLS) published today.
The RLS aims to help people picture what lifestyle they expect in retirement and the costs associated with three different levels.
The annual standards, calculated by the Centre for Research in Social Policy, Loughborough University, now show that a minimum retirement lifestyle costs £13,900 a year for a one-person household and £22,500 for two people.
A moderate lifestyle now costs £32,700 for one person and £45,400 for two, while a comfortable lifestyle costs £45,400 and £62,700 respectively.
The new figures reflect increased everyday costs across spending categories such as food, essential household bills and transport, as well as the social activities and hobbies.
Pension UK said it expects around 82% of the working population to reach the minimum standard of living in retirement. However, that falls to just 23% reaching a moderate standard and 9% reaching comfortable.
The organisation warned that is out of step with what some people expect for their retirement. It said that without higher levels of saving, there is a risk that many will face a significant drop in income when they stop working.
What is needed: two-person household
Standard | Income needed after tax | Income needed before tax | State Pension | Income needed from your pension savings | Estimated DC pot |
Comfortable | £31,350 | £36,045 | £12,548 | £23,497 | £315k–£470k |
Moderate | £22,700 | £25,232 | £12,548 | £12,684 | £170k–£255k |
Minimum | £11,250 | £11,250 | £12,548 | £0* | £0* |
* For two-person households at the minimum living standard, the full new State Pension alone may be sufficient to meet this level of income, depending on individual circumstances.
One-person household
Standard | Income needed after tax | Income needed before tax | State Pension | Income needed from your pension savings | Estimated DC pot |
Comfortable | £45,400 | £54,720 | £12,548 | £42,172 | £560k–£845k |
Moderate | £32,700 | £37,732 | £12,548 | £25,184 | £335k–£505k |
Minimum | £13,900 | £14,232 | £12,548 | £1,684 | £23k–£34k |
Source: Pensions UK
The new figures are published as The Pensions Commission is actively considering whether minimum rates of saving within automatic enrolment schemes need to rise in the future.
In the meantime, Pension UK said the RLS can help people take control themselves, by thinking about the retirement they expect and putting more money away, as well as asking their employer what more they can contribute above the minimum.
Many employers contribute well above legal minimums on their own initiative, but Pensions UK wants to see more action by employers to help fix the retirement savings gap – by making sure they are keeping people enrolled and where possible offering matching contributions above minimum levels.
Zoe Alexander, executive director of policy and advocacy at Pensions UK, said: “The latest update to the Retirement Living Standards underlines a clear reality for many people, today’s saving levels will not be enough for the retirement they expect.
“Without action, too many risk facing a cliff-edge drop in income when they stop work. The Government is right to be considering whether minimum contributions need to rise through the work of the Pensions Commission. In the meantime, tools like the RLS play a crucial role by helping people take control and understand what they might need, so they can put more money away where and when they can.”
She encouraged people to speak to their employer and see whether the organisation is prepared to support them to save above the minimum, such as higher rates of matching pension contributions. “This could help ‘bridge the gap’ until policy catches up and we see higher savings levels set in legislation.”