PLSA gives pensions savers something to aim for

The standards aim to make people think in a more practical way about the kind of lifestyles they may want in retirement. This follows research showing that 77% of savers don’t know how much they will need in retirement and only 16% can give an accurate figure. The PLSA hopes that its Standards will become a rule of thumb for retirement planning.  

The guide aims to show the retirement income requirements at three different levels which are described as minimum, moderate and comfortable. 

The figures are produced by Loughborough University and describe the cost of three different baskets of goods and services that their research indicates the public consider realistic and relevant for retirement living. 

The updated figures include more money for eating out, a higher personal grooming budget and the inclusion of a Netflix subscription. 

The revised figures indicate minimum retirement income levels of £10,900 a year for a single person and £16,700 for a couple. The research suggests this will allow retirees to cover all their basic needs, including food, utilities and clothing, and to eat out around once a month. It also allows for one UK holiday a year and a long weekend away in the UK. There is no allowance for a car within the figures and instead it is assumed that a free bus pass will be used for most journeys.

A ‘moderate’ lifestyle requires an annual income of £20,800 for a single person or £30,600 for a couple. This allows for two holidays in Europe a year, a weekend away in the UK and eating out a few times a month.  The moderate lifestyle assumes one three-year old car in the household and this will be replaced ever 10 years.

To achieve a ‘comfortable’ lifestyle, income levels of £33,600 a year are required for a single person and £49,700 for a couple. This allows a subscription to a streaming service, regular beauty treatments and three European holidays a year.  It also assumes newer cars which will be replaced more frequently and two cars for a couple.

Of course, having a target income to aim for is one thing, being able to save enough to achieve it is another.  The research indicates that three quarters of single employees are likely to achieve at least minimum income levels, half between minimum and moderate and only one in six are projected to have an income level between moderate and comfortable. The figures are slightly higher for couples as they are able to share some of the costs.

The research also provides examples to show what kind of living standards people could achieve based on their salaries, household and savings.  It sets out ten example households at different ages and income levels and outlines how much income they may receive by saving the automatic enrolment minimum levels of 8%. It also shows how much extra income they may receive in retirement by increasing the savings to 12%, a figure often quoted as being the minimum required to achieve an adequate pension.     

The next stage is for the PSLA to work with pension schemes, providers and the Money and Pensions Service to try and engage directly with savers to deliver personalised retirement plans to help people determine the income they need to afford the lifestyles they want.

Hopefully the PSLA will be successful in its aims and this will encourage more people to save adequately for their retirement.   However, with frozen tax allowances and increased national insurance levels, many may find it harder to save more towards their savings in the coming years.