Retirees in the UK trying to achieve a basic standard of living will have seen their expenditure increase over the last year by almost 20% due to high inflation, highlighting the need for pension reform to help more people achieve an adequate income in retirement, according to the Pensions and Lifetime Savings Association (PLSA).
In the latest inflation update of the PLSA’s Retirement Living Standards, people on the Minimum lifestyle have seen the largest percentage increase to the cost of their retirement, owing to the higher proportion of their budget going towards the things that have risen the most in price: food and energy.
Based on independent research by the Centre for Research in Social Policy at Loughborough University, the Retirement Living Standards describe the cost of three different baskets of goods and services, established by what the public considers realistic and relevant expectations for retirement living. These baskets comprise six categories: household bills, food and drink, transport, holidays and leisure, clothing and social and cultural participation.
Reviewing Retirement Living Standards
The PLSA regularly reviews the Retirement Living Standards to ensure they keep up with changes in the public’s expectations of what retired households need as well as the changes to prices on the shelves to remain relevant to real world retirement spending.
The cost of a Minimum lifestyle increased from £10,900 to £12,800 – or 18% – for a single person and from £16,700 to £19,900 – or 19% – for a couple.
The Minimum Retirement Living Standard is the same as the Joseph Rowntree Foundation’s Minimum Income Standard (MIS) and reflects what members of the public think is required to cover a retiree’s needs, not just to survive but to live with dignity – including social and cultural participation.
Rising food and fuel prices contributed significantly to the increase in the Minimum standard.
The disproportionate increase in the cost of retirement for those on the Minimum Retirement Living Standard means the government’s commitment to the state pension triple lock, announced in the most recent Autumn Statement, is especially important.
Rising by a record 10.1% to £10,600 per year, a couple who are each in receipt of a full new state pension would reach the Minimum Retirement Living Standard.
This level should also be very achievable for a single person if they supplement the state pension with income from a workplace pension saved through automatic enrolment during their working life.
Automatic enrolment reform needed
Nigel Peaple, director policy and advocacy at the PLSA, said: “The past year has been an enormously challenging one for many households in the UK. Inflation has risen to its highest rate in 40 years with the cost of essentials and domestic fuel soaring, putting substantial pressure on incomes for working age and retired households, particularly for those on low incomes. These figures underline why the government was right to increase the State Pension in line with the Triple Lock in the Autumn Statement.”
Peaple added: “The jump in the Retirement Living Standards underscores the need for the government to adopt the PLSA’s recommendations on pensions set down in our recent report, Five Steps to Better Pensions. These include the need for the government to adopt clear national objectives for retirement income, to ensure the state pension protects everyone from poverty and, later this decade once the cost-of-living crisis has passed, to increase the scope and level of automatic enrolment pension contributions.”
Emma Douglas, director of workplace savings and retirement at Aviva and PLSA chair, said: “The amounts by which each income level has risen is a timely reminder of the importance of factoring the impact of inflation into retirement planning, to ensure that living standards are maintained throughout retirement.”
She noted that the pensions industry can help by providing modern pension solutions that are flexible enough to meet members’ changing needs. “This might include giving members the right to partial retirement and allowing members to take their benefits while remaining with their current employer,” she said.
Douglas said that the PLSA’s recommendations will help form a new national consensus on how best to build upon a decade of auto-enrolment success so everyone can achieve the right income in retirement.
“The combined successful implementation of these recommendations could make a huge difference to the retirement income of today’s savers,” she noted.
Furthermore, Aviva is calling on the government to put a ‘roadmap’ in place now for how and when it will extend auto-enrolment to include a reduction in the age that people can begin saving through auto-enrolment from 22 to 18 years and to also include a phased abolition of the £6,240 lower earnings limit (LET) to make it easier for lower income and part-time workers to save for their retirement.
“The clock is ticking. The longer it takes for action, the less there will be in the pension pots of lowers earners, people with multiple jobs and part-time workers – and particularly part-time working women,” Douglas stated.
Phil Brown, director of policy at People’s Partnership, provider of The People’s Pension, said: “These revised figures from the PLSA are further proof, if needed, that few are immune from the cost of living crisis. Our own research has previously shown that through pension saving alone, only 18% of the population would achieve a moderate standard of retirement while 4% would enjoy a comfortable retirement, and it is highly likely that number has reduced in recent months.”
He stressed how auto-enrolment is now more important than ever before. “Once we are through the worst of the current crisis, it is vital that not only are the recommendations in the 2017 Automatic Enrolment implemented, but that there is a meaningful conversation around the future objectives of a policy, which has already brought nearly 11 million more people into pension saving.”
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