March 20, 2020

Single people outside London will need at least £10,200 a year in retirement, according to newly-launched ‘Retirement Living Standards’. Catherine Lockyer sees the standards, launched by the Pensions and Lifetime Savings Association (PLSA) as a great start in helping people think more about retirement.

The figures in this article were correct at the time of publication.

How much money will your employees need in retirement? According to the PLSA, a single person living outside London would need an annual income of £10,200 for a minimum standard of living in retirement. For couples, this figure is £15,700. And that’s just for the basics and a bit of fun money.

The PLSA has launched its Retirement Living Standards campaign to provide people with an idea of the target level of retirement income they need so they can plan ahead now for their future lifestyle. This involves thinking about both essential needs and luxuries.

The PLSA has come up with three levels – minimum, moderate and comfortable – based on a combination of goods and services. These include the basics, holidays, cars and other luxuries. There is growing evidence that social interaction has a positive impact on mental wellbeing, so it’s good that even with the minimum level, the PLSA has gone beyond basic needs and included a budget for hobbies and socialising.

For a minimum standard of living the PLSA say you would need

<strong>£10,200 p.a.</strong> If you’re a retired single person living outside London

£10,200 p.a. If you’re a retired single person living outside London

<strong>… and £15,700</strong> if you're a couple.

… and £15,700 if you're a couple.

That gives you the essentials plus a bit of fun money to cover an annual holiday in the UK, the occasional meal out and some leisure activities.

For a moderate standard of living you would need

<strong>£20,000 p.a.</strong> If you’re a retired single person living outside London

£20,000 p.a. If you’re a retired single person living outside London

<strong>… and £29,100</strong> if you’re a couple.

… and £29,100 if you’re a couple.

This provides more fun money, with a two-week holiday in Europe every year and several meals out every month.

For a comfortable standard of living you would need

<strong>£33,000 p.a.</strong> If you’re a retired single person living outside London

£33,000 p.a. If you’re a retired single person living outside London

<strong>… and £47,500</strong> if you’re a couple.

… and £47,500 if you’re a couple.

This allows for more luxuries, such as replacing your car every three years or installing a new kitchen and bathroom every 10-15 years.

*Note that all these figures are in today’s money terms, an important concept when thinking about retirement savings.

Are your employees saving enough to be able to stop work?

As part of its research, the PLSA also carried out a survey to see how well people are planning for their retirement.

Of the people surveyed...

Only 20% believe that they are saving enough for their retirement.
77% do not know how much money they will need.
70% said that knowing how much they needed would help them to save more.
51% think that saving for their pension at the minimum auto-enrolment rate will be enough.
51% only think about what they need right now, and not about the longer term.

Making it real

What does this mean for your workforce?

To make it real, the PLSA provides 8 scenarios to help different people see the impact of retirement saving.

Take one couple. They’re both 35 and each earns £30,000.

They have some pension savings, and each is putting 8% of their salary into a Defined Contribution scheme (including their employer’s contribution), in line with auto-enrolment rules.

If they continue to do this, their annual income in retirement – with the full State Pension – could be around £29,400 in today’s money terms. This will give them a moderate standard of living.

But increasing that amount to 12% could increase their combined annual retirement income to around £36,200. A huge rise.

Although not enough for a comfortable lifestyle, this will provide a few more luxuries – maybe a longer holiday in the sun each year and a new car more often.

The good news is that for most people this minimum level in retirement should be achievable, particularly with forward planning. After all, the full State Pension is currently over £8,700 pa, and most people are now automatically enrolled into a workplace pension.

How can we help your employees?

At First Actuarial, I lead our growing Financial Wellbeing team. We’ve been providing independent financial education services to our clients’ employees for several years now. As service providers in this important area, we welcome the PLSA standards. They really are a great start, and should help focus minds on retirement income planning.

It’s important to acknowledge what we’re up against though. Despite auto-enrolment bringing many more people into workplace pensions, a significant proportion of the working population do not start planning their retirement income until it’s too late. The PLSA’s findings demonstrate all too clearly how many people think only of the here and now, but also how making small changes now can have an enormous impact.

When First Actuarial is invited into a client’s workplace, we encourage every individual to start thinking, and to help them do this, we explain pensions in the simplest terms. This can make all the difference as they think about their own situation, possibly for the first time, without the horror of confusion. The worst thing any of us can do is bury our head in the sand, and yet we know that this is a common reaction whenever pensions are mentioned.

By demystifying saving for retirement and getting people to think about their own needs and circumstances, we can bring financial wellbeing and retirement planning to life, by making it relevant, and possible for every single person in the workforce.

The PLSA’s standards are a deliberately blunt instrument in comparison with detailed personal planning, but we believe they are an excellent first step in grabbing attention and focusing minds.

What we do is to provide engaging and clear help in the form of workshops and one-to-ones, supported by a range of simple planning tools, to help individuals think about their financial future and work out their retirement income. While we do not provide financial advice, we educate people and empower them to understand and manage their own finances better.

We deliver a range of services through face-to-face presentations, online webinars and one-to-one sessions. These include our flagship Saving enough to stop work presentation and our Retirement Modeller interactive tool.

Saving enough to stop work

We have delivered this presentation to workforces across the UK. It sits very neatly with the PLSA’s Retirement Living Standards, by making things a bit more personal, explaining how people can make a real difference to their own retirement income by making small changes right now.

Retirement modeller

Our Retirement Modeller will help your employees work out the total retirement income they can expect from all their schemes, including the State Pension. If they don’t like what they see, they can explore the impact of adjusting their contributions and retirement age. Employees often put these changes into effect after using the tool. They can also think about drawing down from DC pension pots and even spreading other savings over some or all of their retirement.

And with the new Retirement Living Standards, they can now see what kind of lifestyle that will give them.

Interested in our services?

Please contact our financial wellbeing team. We’d love to hear from you.

Any questions or comments about this article?

Get in touch with the author, Catherine Lockyer.

Contact now

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