Nigel Peaple at PLSA on the need to help employees build a picture of retirement
More of us are saving through a workplace pension than ever before. But in today’s tough economic environment, how can employers help their staff understand what they’ve saved and give them confidence about their long-term financial wellbeing?
The Pensions and Lifetime Savings Association (PLSA) has developed the Retirement Living Standards to help with just that.
Based on independent research by Loughborough University, they help savers picture the kind of lifestyle they could have in retirement and understand the cost at three different standards of living – Minimum, Moderate and Comfortable. Like the ‘five a day’ healthy eating maxim, the standards can be used as rule of thumb for retirement planning.
Roughly speaking, a single person will need about £13,000 a year to achieve a Minimum Retirement Living Standard, £23,000 a year for Moderate, and £37,000 a year for Comfortable.
For couples, it’s £20,000, £34,000 and £55,000 respectively.
Giving savers a target
By giving savers a rough figure and a corresponding lifestyle it matches with, the hope is they can start to develop their own personal targets based on their individual circumstances and aspirations.
For example, The Minimum Retirement Living Standard is the same as the Joseph Rowntree Foundation’s Minimum Income Standard (MIS) and reflects what members of the public think is required to cover a retiree’s needs, not just to survive but to live with dignity – including social and cultural participation. It includes £96 for a couple’s weekly food shop, a week’s holiday in the UK, eating out about once a month and some affordable leisure activities about twice a week. It does not include budget to run a car.
The Moderate Retirement Living Standard, in addition to the Minimum lifestyle, provides more financial security and more flexibility. For example, a couple could spend £127 on the weekly food shop, have a two-week holiday in Europe and eat out a few times a month.
At the Comfortable Retirement Living Standard – which is really quite luxurious – retirees can expect to have more luxuries like regular beauty treatments, theatre trips and three weeks holiday in Europe a year. A couple could spend £238 per week on food shopping.
A full State Pension of £10,600 and some private pension savings gets most people to the Minimum level.
We hope reward and employee benefits professionals find the Retirement Living Standards a good starting point for telling staff about their workplace pension, encouraging conversations about long-term financial security or as a resource for workers who are thinking about retiring.