Many people have specific goals for their retirement. They may wish to travel the world, take up an exciting hobby, or start home improvements, drawing upon the state pension or other savings to progress. Regardless of the ambitions a person has for later life, it can be difficult to determine how much all of this will end up costing. In an effort to help Britons understand the kind of lifestyle they want, and how much it will actually cost them, new Retirement Living Standards have been published by the Pensions and Lifetime Savings Association (PLSA).
The new report has been released by the PLSA in collaboration with Loughborough University, and describes different standards of living, pitched at minimum, moderate, and comfortable.
They describe the cost of three different baskets of goods and services, established by what the public considers realistic and relevant expectations for retirement living. The baskets comprise household bills, food and drink, transport, holidays and leisure, clothing and social and cultural participation.
It has been proposed the minimum standard of living could cost £10,900 for a single person, rising to £16,700 for couples.
This is compared with the current full new state pension which is approximately £9,339.20, and in addition to auto-enrolment workplace contributions, it is hoped most Britons will have enough to get them by.
For a “minimum” standard of living, a single person can cover all of their needs, but with no car, a £41 weekly food shop, and £10 allocated for each birthday present for others. Couples living a “minimum” standard of living would have a similar allowance, with a £67 weekly food shop.
Meanwhile, the standards state a moderate lifestyle would cost £20,800 for singles, and £30,600 in a step up – providing more financial security and flexibility. For example, a person could have a two-week holiday in Europe and eat out a few times a month.
For a single person, the moderate sum is £20,800, rising to £30,600 per couple. The annual budget for the moderate standard has risen since 2019 by £600 for a single person and by £1,500 for a couple.
According to the analysis, around half of single employees are on track to expect a lifestyle between minimum and moderate, and those in a couple will be higher in this range as they are able to share costs.
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Finally, when reaching the Comfortable Retirement Living Standard, retirees will be able to expect to enjoy some luxuries like regular beauty treatments, theatre trips and three weeks holiday in Europe a year.
This is £33,600 for a singleton, and £49,700 per couple. The annual budget needed for a comfortable retirement living standard has increased since 2019 by £600 to £33,600 for one person and £2,200 to £49,700 for a couple.
The PLSA states approximately one in six single employees are projected to have an income between moderate and comfortable. More people will be able to achieve this if they are in a couple, and once again, share costs.
Nigel Peaple, Director of Policy and Advocacy, PLSA said: “It is important that the Retirement Living Standards remain relevant by reflecting real world price changes and real world expectations about lifestyles in retirement.
“We hope the updated standards will encourage people to think about whether they are saving enough for the retirement lifestyle they want and, in particular, whether they are making the most of the employer contributions on offer in their workplace pension.
“The lockdowns caused by the pandemic have given many workers a foretaste of being retired and made people think about the activities and experiences they truly value.
“The pandemic has emphasised the importance of economic security as well as social and cultural participation in retirement.
“With barbers and hairdressers closed during lockdowns and many of us taking scissors to our own hair for the first time, it is little surprise that the research groups agreed the budget for personal grooming should be increased across the three standards.”
Additionally, for the first time, there has been an inclusion of a Netflix subscription within the PLSA across all three sections, as trends change and more people spend time on the streaming service.
Tom Selby, head of retirement policy at AJ Bell, commented on the report, and said: “The pandemic has exposed gaping holes in the finances of millions of people, with many having little or nothing saved for an emergency. What’s more, contribution levels into pension schemes remain low, particularly among self-employed workers who don’t benefit from automatic enrolment.
“As the UK economy slowly recovers from lockdown, it is vital financial resilience becomes a key focus for policymakers, both in the short and long-term. This must include encouraging more people to think about how they will fund their lifestyle in retirement, with pensions likely to be central for most savers.
“The PLSA’s ‘Retirement Living Standards’ provide a valuable benchmark against which people can think about their pension planning, and it makes sense to update those Standards in line with what retirees spend their cash on. This is exactly how inflation works and should help ensure the Standards remain relevant to people’s experiences.”
Mr Selby highlighted approximately half of single employees are now estimated to be on track for a minimum to moderate retirement. Those in couples are expected to be closer to the top of this range.
He continued: “While for many people a total retirement income of between £11,000 and £21,000 per year might be enough to fund their planned lifestyles, a minimum to moderate living standard will inevitably be far below the expectations of others.
“For those aspiring to more, higher levels of voluntary saving above the automatic enrolment minimum of eight percent will almost certainly be necessary.
“Higher contributions, particularly in the early years of saving for retirement, can benefit from extra compound growth over the long-term, with an additional boost provided by tax relief and in some cases matched employer contributions. Alternatively, retiring later or working part-time to supplement your pension could help boost your income.
“But whatever your retirement aspirations, it is worth reviewing how much you save and where you save it. If having a moderate or comfortable standard of living in retirement is a key goal, you might need to think about saving a bit more in your pension if you can afford to.”