PLSA reports sharp increase in cost of “moderate” retirement

An update to the association’s Retirement Living Standards reflects the impact of the cost of living but also changing expectations of what people want from retirement.

Its top tier “comfortable” standard has risen to £43,100 for individuals and £59,000 for couples, while those aiming for a “moderate” standard of living saw the biggest rise in percentage terms. Individuals would now require £31,300 a year, up by more than 34%, while couples would require £43,100 a year, the PLSA reported.

The figures are based on a standardised measure of actual living costs excluding housing, as well as a detailed survey of people’s expectations for retirement. The new data reflects not only recent food and energy price inflation but also changing expectations with regard to social activities in retirement. It also sought to reflect a desire to provide financial support to other family members.

“Wake-up call”
Former pensions minister Sir Steve Webb, partner at LCP, described the cost increases as “a wake-up call to government and the pensions industry”.

“Despite a significant increase in the state pension last April, the state pension rate is actually further away from providing a decent minimum standard of living now than it was a year ago,” he said.

“Meanwhile, the cost of a moderate lifestyle in retirement has surged by nearly one third. Yet at the same time the government is still dithering about whether and when to implement a set of modest increases to the amount being saved into pensions under the automatic enrolment rules.

“Without urgent action we are likely to see more and more people facing an unenviable choice between an extended working life or a poor retirement.”

In its latest review of the auto-enrolment system, published this week, the government opted to freeze the minimum earnings trigger but did not specify when it intended to reduce the minimum age level or abolish the lower earnings limit.

Long-term thinking needed
Reaching a moderate income level in the Retirement Living Standards – now £23,300 a year – would require an individual to save approximately £500,000 into their pension pot, according to Pete Glancy, head of pensions policy at Scottish Widows. Couples aiming for the same standard of living would need £750,000 between them.

He also highlighted the cost of rent or mortgage payments, which are not currently factored in to the PLSA’s calculations, as adding to budgeting concerns for retirees.

“This highlights the urgency for the government to establish a retirement commission, to look at all of the aspects of retirement planning in the round,” Glancy said.

Jon Greer, head of retirement policy at Quilter, added that future generations of retirees that are renting or still paying off a mortgage will see these costs erode their pension savings further.

He cited Pensions Policy Institute figures that show that, by 2041, there could be up to 3.6 million households renting while in retirement – an increase of 1.9 million compared to 2023.

The PLSA said higher retirement costs underscored the need for “urgent reform” of workplace savings. The association’s own proposals for policy changes include raising the auto-enrolment minimum contributions to 12%, split equally between employer and employee contributions.