The latest Retirement Living Standards (RLS) update from Pensions UK has highlighted the scale of the retirement savings challenge facing UK workers, as the Pensions Commission considers whether minimum automatic enrolment contribution rates should rise in future.
The annual standards, calculated by the Centre for Research in Social Policy at Loughborough University, show that a minimum retirement lifestyle now costs £13,900 (€16,000) a year for a single-person household and £22,500 for a two-person household. A ‘moderate’ lifestyle costs £32,700 and £45,400, respectively, while a ‘comfortable’ lifestyle costs £45,400 for one person and £62,700 for two.
The figures reflect higher day-to-day costs across categories, including food, household bills, transport, social activities and hobbies.
Pensions UK estimates that around 82% of the working population is on track to achieve the minimum retirement living standard. However, only 23% are expected to reach a ‘moderate’ standard and 9% a ‘comfortable’ standard.
The association said this is “out of step” with the retirement outcomes many people expect and warned that, without higher levels of saving, many risk a significant drop in income when they stop working.
The findings come as the Pensions Commission reviews the future of retirement adequacy, including whether minimum saving rates under automatic enrolment should increase. The commission’s final report is not expected until next year, while the government has ruled out raising automatic enrolment contribution levels during the current parliament.
In the meantime, Pensions UK said the retirement living standards can help individuals assess the retirement they want and consider increasing their pension contributions where possible.
It also called on employers to help address the savings gap by keeping workers enrolled in pension schemes and offering matching contributions above statutory minimum levels where feasible.
Zoe Alexander, executive director of policy and advocacy at Pensions UK, said: “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 said this could help “bridge the gap” until policy catches up and higher savings levels are set in legislation.
Kirsty Ross, proposition director at People’s Pension, said the challenge for the pensions industry is helping savers understand both the likely cost of retirement and the steps they can take to improve outcomes.
“While retirement can seem a long way off, particularly for younger workers, starting to save early remains one of the most effective ways to build financial security later in life. Even relatively small contributions made consistently over time can make a significant difference, thanks to the combined effect of long-term investment growth and employer contributions.
“The RLS provide a useful benchmark for helping people picture the retirement they want and understand whether they’re on track to achieve it. The earlier people engage with that conversation, the more options they are likely to have in the future.”
Lydia Fearn, partner in LCP’s defined contribution team and co-head of consolidation, said the findings reinforced the need for coordinated action to improve retirement adequacy as the Pensions Commission considers the future of automatic enrolment.
She said greater collaboration between government, employers and the pensions industry would be needed to help more people achieve the retirement outcomes they expect.
