The landscape of retirement living in the UK has undergone a significant shift due to changing public expectations and the increasing cost of living.
The recent update to our Retirement Living Standards (RLS) sheds light on these evolving dynamics, offering advisers crucial insights to help savers in planning for the retirement they hope for.
The RLS, reflecting diverse real-life experiences, offers three retirement lifestyles —Minimum, Moderate and Comfortable. These levels serve as helpful financial planning tools, allowing individuals to tailor retirement savings to align with their unique expectations and preferences for later life.
We recommend a gradual increase in minimum auto enrolment contributions from 8% to 12% over a decade
The latest findings reveal an across-the-board increase in retirement costs, reflecting the impact of rising prices, particularly in essential areas such as food and energy. The ongoing repercussions of the pandemic have also prompted a notable shift in priorities, with an increased emphasis on shared experiences beyond the confines of home, such as dining out with family and friends and available allowances to support children and grandchildren.
Minimum: The updated Minimum level is now £14,400 for singles and £22,400 for couples. Aligned with the Joseph Rowntree Foundation’s Minimum Income Standard, it covers needs for dignified living, including £126 weekly for food, a UK holiday, monthly dining out, and bi-weekly leisure activities. At this level, people only have access to public transport and do not own a car.
Moderate: The Moderate level increased to £31,300 for singles, and £43,100 for couples. Offering financial security and flexibility, it adds £225 weekly for food, European and UK holidays (two weeks in total), and financial help for family members. Higher costs in food, energy, motoring and family support contributed to this level’s higher than average percentage increase.
Comfortable: The Comfortable level, featuring some luxuries like beauty treatments and European holidays (two weeks), grew to £43,100 for singles and £59,000 for a two-person household. Food expenses reached £291 weekly. Inflation impacted costs, with a shift to a smaller vehicle contributing to a lower percentage increase than the Moderate level. A three-year-old Ford Fiesta replaced every five years now suffices, compared to previous years’ mid-range SUVs and smaller cars.
The state pension triple lock acts as a vital defence against escalating retirement living costs, offering an 8.5% increase to over £11,500 annually from April. Combined with improved annuity rates, this empowers median earners to attain many aspects of the Moderate retirement level.
As financial planning tools, the RLS are designed to assist individuals in identifying elements of their preferred retirement lifestyle and provide insights into associated costs. Savers can use the RLS to judge whether their current savings levels are going to enable them to reach their desired lifestyle which may fall between the given standards.
Three quarters of the working population (76%) are on track to meet the Minimum RLS. One in five (20%) are projected to achieve the Moderate level and 8% are expected to reach Comfortable, down from 9% last year. Almost half (42%) of the working population are projected to reach the mid-point between Minimum and Moderate.
The call for workplace pension savings reform gains urgency amid higher retirement costs. We recommend a gradual increase in minimum auto enrolment contributions from 8% to 12% over a decade, ensuring a sustainable retirement savings system through most of the rise falling on employers, so both employers and employees would pay the same amount (6% each).
Urgent workplace savings reform measures, including contribution increases, are proactive steps toward better pensions for the UK population.
Nigel Peaple is director of policy and advocacy at the Pensions and Lifetime Savings Association
