The retirement living standards must be widely adopted by schemes to help millions of savers truly understand how to achieve the retirement lifestyle they desire, says Nigel Peaple.
When the Pensions and Lifetime Savings Association (PLSA) launched Hitting the Target in 2018, we said that it was our ambition for the forthcoming retirement living standards to become a widely-adopted industry standard that would help people engage with their retirement savings.
Step forward 12 months and that ambition has taken a massive leap forward to becoming reality.
The new standards we launched at our annual conference this month have been designed to help people picture the lifestyle they want when they retire - and understand the cost.
They establish three levels of retirement lifestyle - minimum, moderate and comfortable - to provide points of focus for discussion and the first step of engagement and understanding.
For each level there is a basket of goods and services, and their costs: household bills, food and drink, transport, holidays and leisure, clothing, and helping others. It's worth remembering that this is not a prescriptive definition of what individuals should aim for, but more an illustration of the kind of lifestyle each standard could offer. Most people will probably identify with a mixture of the standards.
At a cost of £10,200 per year for a single person and £15,700 for a couple, the minimum living standard covers all your needs plus enough for some fun - including social participation and social occasions. To put that into some sort of context, savers could holiday in the UK, eat out about once a month and do some affordable leisure activities about twice a week. 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 very achievable for most people.
The moderate lifestyle - £20,200 a year for singles and £29,100 for couples - provides, in addition to the minimum lifestyle, more financial security and more flexibility. For example, savers could enjoy a two-week holiday in Europe and eat out a few times a month.
At the comfortable level - £33,000 a year for singles and £47,500 for couples - retirees could enjoy some luxuries like regular beauty treatments, theatre trips and three weeks in Europe a year.
The question remains; why is there a need for these standards in the first place and what can people expect from this new information.
Well the truth of the matter is that many people are unable to balance current financial needs with future financial needs.
Our research showed that understanding how much money people need in retirement, and how it compares with their lives now, would help them engage more with pension savings.
Research showed that over half (51%) of people focus on their current needs and wants at the expense of providing for the future, and only 23% of people feel confident they know how much they need to save.
The standards have been designed to fill these gaps in current approaches and act as a practical and meaningful starting point on a saver's retirement journey.
So what next? Well, now that we've launched the standards, the next step for us is to ensure the pensions sector and the government - including the Money and Pensions Service - adopt the Retirement Living Standards to help many more people plan effectively for retirement. A lofty target but we believe it's achievable.
It's our ambition that the standards become widely-adopted and used by schemes representing 90% of active savers by 2025. Practically speaking, we'd want to see them used as part of general information to scheme members, in annual benefit statements, or to develop a more personalised target for the pension planning.We believe that the standards will support better saver engagement. They use easy to understand and relatable figures that can provide a powerful and immediate reason for encouraging saving. They will go a long way to help everyone achieve a better income in retirement.
For more information about the new standards visit www.retirementlivingstandards.org.uk.
Nigel Peaple is director of policy and research at the PLSA
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