Millions of UK workers are facing a sudden and significant reduction in their income when they stop working, an industry body has warned. This alert comes as new research highlights how current savings habits are falling short of what is required for later life.
Retirement Living Standards
The latest data from Pensions UK outlines what is needed to maintain a comfortable post-work lifestyle. These benchmarks are designed to give people a much clearer picture of their future financial requirements. The research categorises retirement into three distinct levels based on everyday living costs.
Three Tiers of Retirement
Calculated by the Centre for Research in Social Policy at Loughborough University, the tiers include a minimum level covering essential needs with a small amount left for discretionary spending, a moderate level offering greater financial security and flexibility, and a comfortable level providing more financial freedom alongside a few luxuries.
Based on these figures, a minimum retirement lifestyle requires roughly £13,900 per year for a single-person household and £22,500 for a couple. A moderate lifestyle is estimated to cost £32,700 for a single person and £45,400 for a couple, while a comfortable lifestyle costs around £45,400 for a single person and £62,700 for a couple.
Savings Shortfall
Pensions UK anticipates that approximately 82% of the UK's working population will achieve at least the minimum standard of living in retirement, with that figure dropping to just 23% reaching a moderate standard and fewer than one in 10 (9%) attaining a comfortable lifestyle.
The organisation is now calling for urgent action to help bridge this savings shortfall. They believe employers should try to increase their workplace contributions to support staff. Furthermore, these baseline figures do not account for ongoing rent or mortgage repayments. Housing expenses vary dramatically across the UK depending on local property markets. Some people will reach retirement having paid off their home completely and be mortgage-free, while others may still be paying a mortgage, and some may be renting. This means it is crucial for people to use the standards as a guide and tailor them to their own situation, Pensions UK said.
Expert Opinions
Zoe Alexander at Pensions UK said: "The latest update to the retirement living standards underlines a clear reality for many people – today's saving levels will not be enough for the retirement they expect. Without action, too many risk facing a cliff-edge drop in income when they stop work. We also encourage people to speak to their employer and see whether the organisation is prepared to support them to save above the minimum, such as higher rates of matching pension contributions."
Professor Matt Padley, co-director of the Centre for Research in Social Policy at Loughborough University, said the retirement living standards "provide a 'real-world' starting point for individuals in thinking about the sort of retirement they want, what this might cost, and how they might get there. We know that many people are not saving enough for retirement, but we also know that for some people it is simply impossible to save any more – you can't save money you don't have. By providing a living standards benchmark, the RLS can help us to think through the roles of the state, employers and individuals in ensuring everyone is able to have at least a minimum standard of living in retirement."
