Why do we need the Standards?
Since the introduction of automatic enrolment on 1 October 2012, more than 10 million people are quietly putting money away for the future for the first time, or saving more.
There is no doubting the success of this change. But automatic enrolment means savings can now commence with a low level of engagement at the outset. Meanwhile, there is less saving in DB schemes which offered certainty of outcome, and more saving in DC. There are also now even more options about how to spend pensions savings at the point of retirement.
Now, more than ever, savers need to engage with their own retirement outcomes. It’s time for us all to picture our future.
But our research showed that 77% of savers don’t know how much they’ll need in retirement and only 16% of savers can give a figure.
In 2015, the MAS, UK Financial Capability Survey also found that general financial capability seems to be falling, with fewer savers able to understand the effect of inflation on the real value of savings, and that 51% of people focus on their current needs and wants at the expense of providing for the future.
With savers now needing to take more responsibility, it’s important we all have the education, tools and guidance to make the right decisions for our retirement.
Our research shows that 74% of savers believe that Retirement Living Standards would make it easier to plan for retirement.
We have transformed saving for retirement for millions of people and the next challenge is to make it easier for them to engage more with their pensions. It's great to see what the PLSA has developed which has the potential to help savers think about the future and plan for the retirement they want.
Guy Opperman MP,
Minister for Pensions and Financial Inclusion
The problem is, working out the exact amount we need is tricky. Our research showed that 77% of savers don’t know how much they’ll need and only 16% of savers can give a figure.
What are the standards?
To keep things simple, the Retirement Living Standards are three levels of expenditure to help savers understand how much money they will need to live the lifestyle they want in retirement.
Inspired by, and similar to, the system used in Australia, the Standards provide a benchmark level of annual income to fund different standards of living in retirement. Each Standard is based around a basket of goods and services and also takes into account different circumstances (living inside or outside London; single or couple).
The “Five-a-day” concept is now so engrained in our culture that we all instantly know what it means, and most of us (whether willingly or not) benchmark our diets against it.
We believe it is healthy - the experts have told us so
- The Retirement Living Standards have been developed through extensive research based on what people really aspire to in retirement.
- The Standards are the starting point to help you engage with your future lifestyle needs.
- The Standards show clear outcomes that will make a difference for you and your loved ones.
We know that if we manage three of our five-a-day, it’s not bad — and one of our five-a-day is still better than nothing. Why should the same standard not exist for retirement income?
That gives us 12 amounts:
Covers all your needs, with some left over for fun
|£10,900 LONDON £13,200||£16,700 LONDON £21,100|
More financial security and flexibility
|£20,800 LONDON £24,500||£30,600 LONDON £36,200|
More financial freedom and some luxuries
|£33,600 LONDON £36,700||£49,700 LONDON £51,500|
But the power of the Retirement Living Standards lies in giving people a real sense of what they will be doing and how they could be spending their money when they finish work.
Talking to people about the building blocks of their lives - their car, their home comforts, how much they can give their family, the kind of holidays they’ll have - helps them to engage with their pension.
Of course, we’re all different. Everyone who reaches the minimum standard is not going to have exactly £10,900 or £16,700 to spend. And anyone who can get above the minimum standard will be able to spend money on some of the lifestyle choices available to people who can afford a higher standard of living, even if they can’t achieve every aspect of a moderate or comfortable lifestyle.
What the standards mean for people in the uk
Pension saving has changed significantly over the past decade, with automatic enrolment, master trusts, reforms to annual allowances and changes to the way we access our money.
We’ve created the standards because we think it’s time to take stock of where we are, build on recent achievements and inspire people to engage with their retirement savings.
The first step is to build awareness - to picture your future and what it could cost. The second is to grow understanding, so we've created a series of examples to show what kind of living standard different people could have in retirement depending on their salaries, household and savings.
We’re working with pension schemes and providers, the Money and Pensions Service and others who engage directly with savers to deliver a third step: personalised retirement plans that help people determine what level of income they need to afford the lifestyle they want in retirement and track their progress towards it.
how we did it
We recommended a set of Retirement Living Standards for the UK in our July 2018 report, ‘Hitting the Target: A vision for retirement income adequacy’, which followed a consultation we ran with the pensions industry to find ways to give people a better income in retirement.
We then partnered with researchers at Loughborough University’s Centre for Research in Social Policy. They developed the Minimum Income Standard, funded by the Joseph Rowntree Foundation, which is the basis for our minimum standard.
We set the moderate and comfortable standard with the help of focus groups made up of real people held all over the country.
Between them, the focus groups pulled together a list of the goods, services and activities that they believed to provide our three standards of living in retirement. The work was extensive – here are all the items that go into the standards:
- Household bills (e.g. water, council tax, insurance, electricity)
- Telephone bills (landline and mobile) and line rental
- Decorating and maintenance
- Furniture, cleaning supplies, lightbulbs, cooking utensils, appliances (e.g. fridge, washing machine), garden supplies, towels, bedding, etc.
- Gardener/cleaner/window cleaner (if applicable)
- Funeral plan (if applicable)
Food & Drink
- Eating out budget
- Beer and wine
- Car (if applicable)
- Railcard and train travel
Holidays & Leisure
- TV, DVD player, laptop, printer, speakers, CDs and stationery supplies
- TV license and subscriptions
- Holidays, spending money and passport
Clothing & Personal
- Clothing and footwear budget
- Cosmetics, toothbrush, toothpaste, shaving supplies, hair styling, beauty treatments (if applicable), suitcases, umbrellas
- Dentist, opticians, podiatry, minor first aid (e.g. plasters, paracetamol)
- Gifts for others
- Helping others (if applicable)
- Charitable donations
From this, we were able to calculate a cost for all these items and work out what each living standard would cost a year.
Updating the standards
We update the standards on a regular basis, carrying out further research with people across the country to ensure that the retirement living standards remain current, incorporating changes in the costs of goods and services as well as reflecting any changes in people’s expectations for retirement. Our latest research updating the standards was carried out in 2021 which included an exploration of the impact of COVID-19 on retirement expectations.
You can download the 2019 data from the original research detailing the basket of goods for each standard.
The detailed baskets of goods spreadsheet for 2021 will be published later in the year.
What you need to know about the standards
Everyone's financial circumstances are different. The standards provide a rule of thumb guide based on common costs for many people in retirement. They are the first step on the journey: you might want to think about using them to go on to develop your own personal target. When doing this it is important to know what is and isn’t included in the standards. We’ve listed the key things below. We've also included some information about what total DC savings might achieve the standards if you were to buy an annuity, and what income you need before tax to afford the costs of each standard.
State Pension – please do remember – you may well be entitled to the state pension which, along with automatic enrolment savings will get most people to the minimum standard - the full state pension for 2021-22 is £9,339 per year. Further details on the latest state pension amounts and eligibility can be found here.
Housing – the standards assume people are mortgage and rent free, because this is still what most of the population close to retirement will achieve in the next few years. We will review this over time as increasing numbers of people are paying a mortgage into their retirement or may be renting rather than owning a home. If you think you will have mortgage costs or rent costs in retirement you need to add this onto the standards. As these costs vary considerably by location and type of accommodation looking at your own individual outgoings is the best measure but we have provided a guide to the latest UK rental costs in the link below.
Social care - care costs may well arise, especially later into retirement. These costs are very specific to individuals so we haven’t included them in the standards. If you think you are going to need to cover costs of social care, and want plan an income to cover these, then these would need to be added to the figure the standards provide. You might want to think about adding in an average cost to give you a ball park figure.
Where you live – our findings were based on research conducted in many locations across the UK which have enabled us to calculate figures for the UK and for London, but there may be some areas that have higher or lower costs of goods and services eg additional transport costs.
Dependents - the financial support of (a) dependent(s) other than a partner aren’t included in the standards – for example, living with relatives could change your expenditure.
DC pot size and income tax – See How much income you could need for each standard to find out how pot size can provide a rough guide to likely living standard, and also what sort of income you need before income tax to afford the costs of each standard.
Other sources of income - remember, the standards are what the basket of goods cost – so if you have sources of income other than your pension – part time work or other savings – you might want to factor this in to whether you are on track for the future you want.
Financial advice – the Standards are designed to provide a helpful rule of thumb and are based on research findings - they do not constitute financial advice.