Three in four pension savers are failing to save enough for even a moderate income in retirement, according to Pensions UK’s updated Retirement Living Standards (RLS) report published today.
Three quarters of people will miss out on a moderate retirement income, the study found, with just 23% reaching the moderate standard of retirement income and only 9% achieving a comfortable retirement income.
The RLS aims to help people picture what lifestyle they can expect in retirement and the costs associated with three different levels of retirement income.
The annual standards, calculated by the Centre for Research in Social Policy, Loughborough University, shows 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 requires a retirement income £32,700 for one person (£31,700 last year) and £45,400 (£43,900 last year) for two people. A comfortable lifestyle for one person now needs an income of £45,400 (£43,900 last year) and £62,700 (£60,600 last year) for two people.
Pensions UK figures show a rise in the cost of most retirement incomes although the minimum income cost has fallen, likely due to the rise in the State Pensions.
The updated figures reflect increased everyday costs across key 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 a comfortable income.
The organisation warned that saving was out of step with what some people expect for their retirement income. It said that without higher levels of saving, there is a risk that many will face a significant drop in living standards when they stop working.
What Pensions UK Say 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 government-backed 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 of income 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.
Claire Trott, head of advice at wealth manager St James’s Place, said: “Today’s update from Pensions UK underlines the growing challenge facing savers, with the cost of retirement rising across the board. A single person now needs £13,900 a year for a minimum standard of living, £32,700 for a moderate lifestyle and £45,400 to live comfortably in retirement. Unlike some previous updates to the Retirement Living Standards, where the picture has been more mixed, this year costs have increased across the minimum, moderate and comfortable standards, reflecting the continued pressure on household finances.
“Our recent Financial Health research shows the same pressure coming through in people’s day-to-day lives, with adults twice as likely to say their financial situation has worsened over the past year than improved, 34% compared with 17%. Rising living costs are the most commonly cited reason for this, at 69%, followed by rising food and essential costs, at 57%."