The Pensions and Lifetime Savings Association (PLSA) has urged the pension industry to adopt its new retirement income standards which aim to help people match the lifestyle they want in retirement with their pensions.
The PLSA’s UK Retirement Living Standards, published today (October 17), provide savers with tangible income goals in order to achieve different standards of living in retirement.
The standards show what life in retirement looks like at three different levels, and what a range of common goods and services would cost for each level.
The three levels are minimum, moderate and comfortable, and the standards have been designed to fill the perceived gaps in current approaches and aid advisers when helping their clients with retirement planning.
The minimum level focuses on a pension of £10,200 per year for an individual saver and £15,700 for a couple, which the PLSA says should cover the minimum living standards as well as leaving some income for social occasions.
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.
At the comfortable level (£33,000 a year for singles and £47,500 for couples), retirees could enjoy a more luxurious retirement, such as going on more holidays, according to the standards.
The PLSA wants its Retirement Living Standards to become a widely adopted industry standard.
This would result in pension providers publishing them in annual statements and advisers using them when developing personalised targets for their clients' pension planning.
The PLSA wants pension schemes to have adopted these standards by 2025.
As well as helping savers understand what their retirement will look like, the PLSA believes the standards will help the pensions industry by:
- Bringing a set of robust standards, based on independent research with the UK public, for use across scheme communications and tools;
- Equipping schemes to further encourage savers to engage with their pension; and
- Giving savers concrete information about costs in retirement to give them more confidence in planning to achieve their aspirations.
The PLSA is also working with the Money and Pensions Service to include the standards in its tools, such as the Money Advice Service pension calculator.
Advisers have welcomed the standards with some already planning to incorporate them in their clients’ retirement planning.
Rebecca Aldridge, managing director at Balance Wealth Planning, said: “The Retirement Living Standards are an excellent initiative. They clearly recognise that people have different aspirations in retirement and give some really clear guidance about how much different activities tend to cost.
“It’s practical and easy to understand. I can see this being a vital benchmark for people to work towards when they’re planning for the future."
She added: “Of course the next logical step is to explain how much an average person might need in savings (whether in pensions, Isas or something else) to support that level of income either on a secure guaranteed basis, or a flexible access basis, although that can vary very widely.
“I hope the Retirement Living Standards are adopted widely. I will certainly be integrating them into our planning with clients.”
Some other firms said they have already embedded the new standards into their existing pension tools.
Laura Myers, head of defined contribution at consultancy firm Lane Clark & Peacock, said: “At LCP we have embedded the new Retirement Living Standards into our DC modeller, LCP Horizon, as we think these new measures will help trustees and employers quantify DC strategy decisions.