Majority of workers are not on course for adequate retirement

A new report from Pensions UK has warned that most workers are not saving enough for even a ‘moderate’ lifestyle during retirement.

 The Retirement Living Standards report argues that rising bills have pushed a moderate retirement, priced at £32,700 a year for one person or £45,400 for a couple, further out of reach, with only 23 per cent of workers in the UK currently on track for this, while a Comfortable lifestyle costs £45,400 and £62,700.

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. 

The figures reflect increased everyday costs across spending categories such as food, essential household bills and transport, as well as social activities and hobbies.

Around 82% of the working population to reach the Minimum standard of living in retirement. However, this falls to just 23% reaching a Moderate standard and 9% reaching Comfortable. This is out of step with what some people expect for their retirement. Without higher levels of saving, there is a risk that many will face a significant drop in income when they stop working.

The Pensions Commission is actively considering whether minimum rates of saving within automatic enrolment schemes need to rise in the future. 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.

Housing costs are not included within the Retirement Living Standards, as they vary significantly depending on location and personal circumstances. Some people will enter retirement mortgage‑free, while others may continue to rent, finish paying their mortgage or have major life changes in later life.

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. It is expected that around 82% of people reaching a Minimum standard of living, but far fewer will go beyond that.

“That is out of step with what people expect for their future. 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.

“We also encourage 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.”

Professor Matt Padley, Co-director of the Centre for Research in Social Policy at Loughborough University, said “The Retirement Living Standards continue to provide detailed descriptions of what the public agree everyone needs for a Minimum, Moderate and Comfortable standard of living. The RLS are rooted in people’s lived experience and reflect a shared understanding of expectations about life in retirement, shaped by the social, economic and political context of contemporary UK society. They provide a ‘real-world’ starting point for individuals in thinking about the sort of retirement they want, what this might cost, and how they might get there.

“But crucially, the RLS also give us a way of thinking more broadly about the ‘adequacy’ of incomes in retirement, and the role that pensions policy can play in enabling everyone to have a decent, minimum standard of living in retirement. We know that many people are not saving enough for retirement, but we also know that for some people it is simply impossible to save any more – you can’t save money you don’t have. By providing a living standards benchmark, the RLS can help us to think through the roles of the state, employers and individuals in ensuring everyone is able to have at least a Minimum standard of living in retirement.”