If you are using the PLSA’s excellent Retirement Living Standards benchmarks in your guidance to DC savers, be ready to make immediate changes. Today they have published updated figures and as usual we owe it Jo Cumbo to be first with the news!
Basic needs cost 10% more this year
The annual cost of a “basic” retirement income for a single person in Britain rose by around 10% to £14,400 according to the PLSA. Increases in energy and food costs and pressuring retirement incomes at the “basic” level.
— Josephine Cumbo (@JosephineCumbo) February 7, 2024
The squeezed middle feel even more pain
Meanwhile the annual cost of having a moderate income in retirement jumped by nearly 40% to £31,300 amid rising living costs and expectations that grandparents will be playing a role in supporting other family members, according to the Pensions and Lifetime Savings Association
— Josephine Cumbo (@JosephineCumbo) February 7, 2024
Here is a table setting out what the PLSA counts as a basic, moderate and comfortable retirement. Those in the “moderate” bracket have faced the biggest financial squeeze on their retirement income according to the PLSA. pic.twitter.com/0fWqVjPC5z
— Josephine Cumbo (@JosephineCumbo) February 7, 2024
Meanwhile the annual cost of having a moderate income in retirement jumped by nearly 40% to £31,300 amid rising living costs and expectations that grandparents will be playing a role in supporting other family members, according to the Pensions and Lifetime Savings Association
— Josephine Cumbo (@JosephineCumbo) February 7, 2024
The cost of comfort is over three quarters of a million pounds.
Securing a guaranteed annual income of £31,300 requires a pension pot of over £750,000, according to Scottish Widows. https://t.co/QH25otttgl
— Josephine Cumbo (@JosephineCumbo) February 7, 2024
Get ahead of the game
Jo seems to have got so far ahead of the game that she’s even beaten the PLSA , who have the old standards up on their website
Be the first on the block to have the new standards embedded into your guidance by sharing this article with your marketing and support teams!
Two reminders
Thanks to Dave Brooks for reminding us that these target income figures are net of tax- that means that if you are planning on paying tax in retirement, you will need to gross up your income by your marginal rate of tax.
The target income figures take into account some of the housing costs you might encounter in retirement, but don’t take into account all costs – especially if you have a mortgage in later life.
Revised numbers for 2023 are here
Previous numbers for comparison are here
Going forward, I think the PLSA needs to add data for those of us who face renting into retirement.
The PLSA told me they did think about it Karen, but concluded that rental costs varied too widely to be of use. Similarly trying to provide pre-tax gross income targets was too difficult, given the variety of possible marginal tax rates.
For example, lodging with relatives might be free for some, whilst others might face rental costs of £000s per month.
I thought the previous version of the PLSA’s Retirement Living Standards were pretty good. I think they’ve now lost the plot. I’m looking mainly at the single person case here because that’s the category I fit into (I’m retired and live what I consider a pretty comfortable life on less than £20K/year). They’ve increased the cost of a “moderate” retirement income by 35% this year to £31,300.
The median UK salary according to ONS is about £35K. Assuming no student loan contributions and 5% auto enrolment pension contribution this gives a take home of about £27K/year out of which people fund their accommodation and often raise a child. The PLSA however believe a “moderate lifestyle” in retirement, with no housing costs, requires a take home of 15% higher than this. That’s ridiculous.
Are they really suggesting people expect a significantly higher income in retirement than when in work?
The research consisted of only 135 people from 11 areas of the country and were arrived at effectively through focus groups. I suspect some flaw in the way they selected participants “from a range of socio-economic backgrounds”.
Reading the full report and the excerpts from transcripts it looks very much like they’ve asked people what they would like in the various retirement categories without putting a figure on the cost for those things. So the moderate lifestyle includes £500/years for shoes. If they’d been told “that’ll need you to save an extra £12.5K into your pot, do you really think you need that many shoes?”. Or “I can see that supporting your grandchildren/family to the tune of £1K per year is important to you, but you’ll need an extra £25K saved into your pot to do that – do you think people can save that much?”. Or, “I see you think a moderate lifestyle would allow you to eat out weekly with an annual bill of about £2000. You’ll need £50K in your pension pot to fund that – still reasonable?”. Once you get all the way through the list show them how their shopping list adds up and whether they’d like to make any changes.
I think this version of the survey is just exposing the massive gap between what people “expect” in retirement against the reality of pension pots of about £100K for people in the range 54-65.
As a way of scaring people into saving for their retirement the PLSA standards were a good idea. Make the numbers too unachievable/unrealistic then you just scare people away.
Thanks Richard , a really interesting comment which is worthy of being a blog. Including the spending patterns of people in later life is a good alternative to aspirations. Most of us cut our cloth according to our pockets , even £100k pots don’t make for deep pockets
I’d also point out that Jo Cumbo is wrong to say you need a pot of £750K for a retirement income of £31,300 – that assumes no state pension. That’s more scaremongering. According to the RLS report you’d need a pot of between £300K and £500K. Still unachievable for many people but considerably less scary.
https://www.retirementlivingstandards.org.uk/How-to-estimate-likely-RLS-2024.pdf
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