Continuing Tuesday’s insight article, today we further explore the Retirement Living Standards and what they mean for savers, employers and advisers.
More people are saving into a workplace pension than have ever been before, with savers being presented with an increasingly wide range of options.
The Pensions and Lifetime Savings Association (PLSA) Retirement Living Standards were developed to help savers picture what kind of lifestyle they could have in retirement, to help them think practically about what they need to save in order to meet the living standard they want to meet in retirement.
The latest research updating the standards was carried out in 2021 and included an exploration of the impact of the Coronavirus pandemic on retirement needs and expectations. Other updates also included more money for eating out, a higher personal grooming budget, and the inclusion of a Netflix subscription.
It was the first update since the standards were established.
Researchers from Loughborough University held 13 discussion groups with members of the public from across the UK including both retirees and those approaching retirement (55+) to determine changes to the baskets of goods.
The Standards provide a “rule of thumb” guide based on common costs for many people in retirement and therefore do not include some key elements of retirement planning.
They do not include State Pensions and assume that savers are mortgage and rent free at retirement.
They also do not include any care costs, vary by where savers live, the cost of any dependents, other sources of income outside of pensions, or take income tax on workplace pensions into account.
The Retirement Living Standards have seen a healthy take-up.
There are now 50 pensions providers, schemes and organisations making use of the Standards with roughly 14 million savers seeing them referred to in communications about pensions and retirement planning.
Chart 2: The workplace pension providers in our research who currently support The Retirement Living Standards
In a poll conducted at the PLSA’s first-ever virtual Annual Conference in 2020, over two-thirds (67%) attendees who had used the standards stated that they had used the Retirement Living Standards as part of online information, whilst a third had included this within annual benefits statements. Almost a fifth (19%) said they had embedded the Standards into tools they provide for savers, including retirement income calculators.
The Retirement Living Standards are also often referred to by public bodies and think tanks when considering pensions adequacy.
The PLSA is encouraging employers and advisers to include the Retirement Living Standards in the communications and tools they provide.
It says that by using the Standards to make retirement saving tangible and realistic, employers can encourage savers to engage with their pensions, as well as giving savers more confidence about what their savings will buy them in retirement.
By 2025 the PLSA wants to see 90% of active savers belonging to a workplace pension scheme that uses the Retirement Living Standards in its member communications.
The PLSA is also working with the Money and Pensions Service and the Pensions Dashboard Deliver Group to make the Retirement Living Standards part of the Dashboards project.
Like the 5-a-day healthy eating initiative, the PLSA hopes the Retirement Living Standards will become a rule of thumb for retirement planning, providing a common language to help the UK engage with retirement saving.