A new set of “retirement living standards” to help people set savings goals for later life, by giving them a clearer idea of how much cash they might need, has been launched.
The standards, launched by the Pensions and Lifetime Savings Association (PLSA), are designed to try and give people a picture of the kind of lifestyle they may have on a minimum, moderate or comfortable retirement income.
It is hoped the standards will resonate with pension savers in the same way that being told to eat “five a day” has encouraged fruit and vegetable consumption.
The minimum standard assumes a single person would have an annual income of around £10,000 or £15,000 for couples.
Someone with a moderate retirement income would have in the region of £20,000 as a single person or £30,000 as a couple to live on.
And the benchmark for a comfortable retirement income is £30,000 per year for individuals and £45,000 for couples.
The PLSA, which represents over 1,300 pension schemes, was launching the standards at its annual conference in Manchester.
It said someone on a minimum standard may typically expect to afford a £38 weekly food shop, rising to £46 for someone on a moderate income and £56 on a comfortable income.
Someone living a comfortable retirement may be able to replace their car every five years, while someone on a moderate retirement may have an older car which they can afford to replace every 10 years.
On a minimum retirement income, it may be hard to afford to run a car at all.
The standards are based on research by Loughborough University.
The PLSA said that even the minimum retirement income standards allowed enough money for some “fun”, including a budget for social occasions.
It said the good news was that through a combination of the full state pension of £8,767.20 per year, and auto-enrolment in a workplace pension, this level should be achievable for most people.
Nigel Peaple, director of policy and research at PLSA, said: “Goal-setting can help people plan, and a series of simple standards could transform pensions engagement.
“Nearly three-quarters (76%) of people believe that retirement living standards would help them to know if they were on track for the lifestyle they want in retirement.”
He said he hoped the standards might transform the way people think about retirement saving in the same way “five-a-day” messages have changed perceptions about healthy eating.
He continued: “We want the pensions industry and government to use these standards to help people save for their future.
“For example, some parts of industry plan to provide the information to their scheme members, some are building tools for savers to track their saving, and others are developing calculators to help support savers to build a personalised target based on the standards.”
Guy Opperman, minister for pensions and financial inclusion, said: “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.”
Jackie Spencer, senior policy and propositions manager at the Money and Pensions Service, said: “Saving for something is easier to do when you can visualise what you’re working towards, which is why people are often more motivated to save for short-term goals like holidays and new cars than they are for their retirement.
“The new retirement living standards are a great way of offering savers some practical examples of what they can expect from their lives when they stop working.
“The Money and Pensions Service has agreed to be an early adopter of the new standards and will be looking to incorporate them into pension guidance and our online pension calculator.”
Pensions giant Aviva welcomed the standards.
Steve Jackson, workplace pension proposition manager at Aviva, said: “The retirement living standards (RLS) do a fantastic job of making pension-saving feel tangible.
“Since defined contribution (DC) pensions were created, the best the industry has really been able to do is tell people to ‘save as much as you can, for as long as you can’.
“That’s not bad guidance, but it’s not very compelling either.
“Our own customer research found one of the key questions people want answered is ‘am I saving enough?’ The RLS can now go some way to answering that, giving people a real target to aim for.”
Gregg McClymont, director of policy at the People’s Pension, said: “With so much uncertainty for savers, the new PLSA standards offer members a welcome rule of thumb starting point for complex retirement conversations.”