Retirement Living Standards update shows the nation is not saving enough

As the Pensions Commission considers how to increase the nation’s retirement savings, Pensions UK’s updated Retirement Living Standards (RLS) underline that many people are not saving enough.

The RLS are there to help people picture what lifestyle they expect in retirement and the costs associated with three different levels.

The annual standards, calculated by the Centre for Research in Social Policy, Loughborough University, now show that a Minimum retirement lifestyle costs £13,900 a year for a one-person household and £22,500 for two people. A Moderate lifestyle costs £32,700 for one person and £45,400 for two, while a Comfortable lifestyle costs £45,400 and £62,700 respectively.

The figures reflect increased everyday costs across spending categories such as food, essential household bills and transport, as well as the social activities and hobbies.

We expect around 82% of the working population to reach the Minimum standard of living in retirement. However, this falls to just 23% reaching a Moderate standard and 9% reaching Comfortable.

This is out of step with what some people expect for their retirement. Without higher levels of saving, there is a risk that many will face a significant drop in income when they stop working.

The Pensions Commission

The Pensions Commission is actively considering whether minimum rates of saving within automatic enrolment schemes need to rise in the future.

In the meantime, the RLS can help people take control themselves, by thinking about the retirement they expect and putting more money away, as well as asking their employer what more they can contribute above the minimum.

Many employers contribute well above legal minimums on their own initiative, but Pensions UK wants to see more action by employers to help fix the retirement savings gap – by making sure they are keeping people enrolled and where possible offering matching contributions above minimum levels.

Housing costs and individualisation

Housing costs are not included within the Retirement Living Standards, as they vary significantly depending on location and personal circumstances. Some people will enter retirement mortgagefree, while others may continue to rent, finish paying their mortgage or have major life changes in later life.

This means it is important for individuals to use the Standards as a guide and adjust them to reflect their own situation, particularly where additional housing costs are likely to be a key factor.

Zoe Alexander, Executive Director of Policy and Advocacy at Pensions UK, said: “The latest update to the Retirement Living Standards underlines a clear reality for many people, today’s saving levels will not be enough for the retirement they expect. It is expected that around 82% of people reaching a Minimum standard of living, but far fewer will go beyond that.

“That is out of step with what people expect for their future. Without action, too many risk facing a cliff-edge drop in income when they stop work. The Government is right to be considering whether minimum contributions need to rise through the work of the Pensions Commission.

“In the meantime, tools like the RLS play a crucial role by helping people take control and understand what they might need, so they can put more money away where and when they can.

“We also encourage people to speak to their employer and see whether the organisation is prepared to support them to save above the minimum, such as higher rates of matching pension contributions. This could help ‘bridge the gap’ until policy catches up and we see higher savings levels set in legislation.”

Professor Matt Padley, Co-director of the Centre for Research in Social Policy at Loughborough University, said; “The Retirement Living Standards continue to provide detailed descriptions of what the public agree everyone needs for a Minimum, Moderate and Comfortable standard of living. The RLS are rooted in people’s lived experience and reflect a shared understanding of expectations about life in retirement, shaped by the social, economic and political context of contemporary UK society. They provide a ‘real-world’ starting point for individuals in thinking about the sort of retirement they want, what this might cost, and how they might get there.

“But crucially, the RLS also give us a way of thinking more broadly about the ‘adequacy’ of incomes in retirement, and the role that pensions policy can play in enabling everyone to have a decent, minimum standard of living in retirement. We know that many people are not saving enough for retirement, but we also know that for some people it is simply impossible to save any more – you can’t save money you don’t have. By providing a living standards benchmark, the RLS can help us to think through the roles of the state, employers and individuals in ensuring everyone is able to have at least a Minimum standard of living in retirement.”

We would like to thank our Friends of the Retirement Living Standards who support us in establishing the RLS. These organisations help fund the necessary further research to ensure the standards remain up to date and relevant:

LCP, L&G, Mercer, Railpen, Retirement Line, Royal London, Standard Life, TPT Retirement Solutions, Travers Smith, USS, West Midlands Pension Fund, WTW.

Commentary from the Friends of can be found here.

Paula Llewellyn, CEO, DC & Workplace Savings at L&G, said: “Saving for retirement can often feel daunting, especially when the cost of later life continues to rise. The Retirement Living Standards are a valuable tool because they help bring those costs to life and give a clearer sense of what different lifestyles in retirement might look like.

"While there’s no single roadmap that works for everyone, having something tangible to plan against can make retirement planning feel less overwhelming. Our own research, carried out under L&G’s Decades Ahead programme, shows that around 9 million people in the UK are not on course for an adequate retirement — but it’s not too late for many of them to make a meaningful difference to their futures. Taking small steps, whether saving a little more or simply checking whether you’re on track, can have a real impact over time. Having access to the right tools, guidance and support can also help people feel more confident about the decisions they make.”

Andy Bord, Chief Executive Officer of Railpen, said: “The update to the Retirement Living Standards is a significant step forward in helping members understand what they may need in retirement. It encourages individuals to assess their own circumstances and make more informed decisions, supporting stronger outcomes for savers.

“This clearly shows that there is a real gap between people’s lifestyle expectations and reality in retirement – even at a modest level. Hopefully, it will prompt people to review their plans and, where possible, save more.”

Mark, Ormston, COO at Retirement Line, said; “The timing of this update has dovetailed nicely with the interim report published by the Pension Commission. This latest revision of the Retirement Living Standards (RLS) continues to show that the full State Pension falls short of covering the Minimum lifestyle for a single individual, which now requires £13,900. Savers continue to be dependent on building private pension pots in order to reach the Moderate and Comfortable RLSs. Crucially, because these standards measure baseline expenditure and exclude housing costs, millions of future retirees face a risk of falling short of a lifestyle that delivers security, social participation and most importantly, expectations!

“The fantastic work by the Pensions UK RLS team brings into sharp focus that resolving the retirement adequacy dilemma can no longer be viewed simply as a challenge of individual financial behaviour, but a systemic issue that demands decisive structural and policy reform, a shift in focus that is already gaining traction through the work of the Pensions Commission.”

Jamie Jenkins, Director of Policy at Royal London, said; “The Retirement Living Standards continue to provide a very simple view of the income needed to fund different retirement lifestyles. Although many are on track for a minimum standard, overall financial resilience in retirement is still a long way off. Encouraging people to start saving earlier and saving more could make a significant difference.”

Emma Furlonger, Managing Director of Workplace and Retail Intermediated (Interim), at Standard Life, said: “The updated Standards highlight that the cost of retirement isn’t static, with rising living expenses continuing to impact how much people may need in later life.

“By providing clear, relatable benchmarks, the Standards make retirement more tangible, while recognising that individuals will have their own ideas about what they need to budget for. It’s important for people to think about how their needs may change in retirement and consider how they will meet essential costs as well as planning for more discretionary spending.

“Encouraging earlier engagement, supported by clear benchmarks and other tools such as pension calculators and engaging communications, is key to helping savers, employers and the wider industry as we work together to support more informed decisions and better retirement outcomes.”

Georgie Edwards, DC Proposition Associate Director at workplace pensions provider, TPT Retirement Solutions, said: “Understanding a pension isn’t easy, and many people need help making sense of what their savings today will mean in retirement. The Retirement Living Standards are a valuable aid to retirement planning. The standards are a guide, but everyone’s retirement is different. We share the detail behind the numbers so people can decide what matters most to them. With confidence low and millions undersaving, giving members clarity and helping them to take early action is essential.

“The State Pension provides an important base level of income, but it’s the savings on top that shape the lifestyle people can enjoy. Our planning tools bring this to life by combining the Retirement Living Standards, an optional State Pension toggle, and external retirement savings, to give members a clear, personalised picture of their future.”

David James, Partner and Head of Pensions at Travers Smith, said; “Travers Smith cares about members and the world into which they will retire and has helped clients develop ground-breaking products to better support defined contribution members with the decisions they face when accessing their pension benefits. We are delighted to continue to sponsor Pensions UK's Retirement Living Standards research, which helps individuals picture what kind of lifestyle they could have in retirement and the costs involved. With the forthcoming launch of the Pensions Dashboards, members will have access to a lot more information about their pensions savings so having a tool such as this to help them translate what that information means for their real-life retirement outcomes is more important than ever.”

Anne Jones, Senior Director at WTW, said; “The Pensions UK Retirement Living Standards play an important role in helping individuals understand how much they need to save as well has helping Trustees and employers understand the challenges facing their members. Based on the research, nearly 20% of the working population are still not on course for a minimum level of retirement income – further underlining the challenges identified within Pension Commissions Interim Report. As an industry we need to do more to help individuals understand their own individual target and how they can get there.”