When the Pensions and Lifetime Savings Association (PLSA) carried out our Hitting the Target research in 2017-18, we found that only 23% of savers felt confident that they knew how much they needed to save for their retirement. To help address that, one of the major outcomes of that report was to create a clear set of industry standards that would help savers to picture their future. And at this year’s PLSA Annual Conference, that vision became a reality. Nigel Peaple, Director of Policy and Research at the PLSA discusses.
Launched during the event, the PLSA’s Retirement Living Standards are a set of clear measures that identify how much money individuals will need to save in order to achieve one of three standards of living for life after work.
Developed in conjunction with the Centre for Research in Social Policy (CRSP) at Loughborough University, the Retirement Living Standards identify how much money an individual or a couple would need to maintain a minimum, moderate and comfortable standard of living in retirement.
That research showed this equates to £10,200 for a minimum, £20,200 for a moderate and £33,000 for a comfortable standard of living. For couples, the figure is 1.5 times the single standard, so a minimum standard of living for a couple would require around £15,000 per year. For those living in London, there is an additional set of figures that reflect the higher cost of living in the capital.
The figures are for expenditure in retirement, but if you factor in the State Pension at its current rate of £8,767 per year, savers would require additional income from workplace pensions of around £2,000 to reach the minimum standard, £12,000 for moderate and £22,000 for comfortable.
How are the Retirement Living Standards calculated?
The standards use a methodology which is based on a ‘basket of goods’ approach, broken down into six categories: house, food and drink, transport, holidays and leisure, clothing and personal, and helping others.
The research defined a moderate standard around key principles such as a sense of security and knowing you’ll always have enough for your minimum needs, plus some extra to allow you to eat out and have a holiday overseas once a year. A comfortable standard of living would ensure more financial freedom and the greater flexibility that this provides.
The basket of goods approach is very tangible and outcome-focused which can help people to time-hop and picture their own futures.
How will the Retirement Living Standards be used?
Like the five-a-day healthy eating campaign, the PLSA hopes the Retirement Living Standards will start a national conversation, to promote greater understanding and help people imagine their own spending in retirement.
The website allows savers to look at a range of salaries, ages, savings histories and lifestyle elements, using different personas as examples. This information can help savers understand which of the three standards they might expect in retirement.
Personalised engagement through the Standards can help drive action but we need support from pension schemes and other parts of the industry to achieve that. Savers can expect to see references to the Retirement Living Standards in the tools and calculators that exist to support them.
That might mean you see them incorporated into annual benefit statements or your employer signposting you to them via the company website. Or it could mean you’ll start to see innovative uses of digital tools that use the Standards to nudge you to pay more attention to your pension.
At launch, 22 major providers and pension schemes had already committed to using or supporting the Retirement Living Standards – including Legal & General, M&S and Nationwide. Our target is to reach 90% of active savers by 2025 and in turn help them to picture their future.
Find out more about the Retirement Living Standards by visiting here where you can explore the basket of goods, see examples and download the full research behind the standards.
This article first appeared in Your Later Life.