How much money to save for retirement: what the size of your pension means for your living standards

The standards relate to three levels of expenditure: minimum, moderate and comfortable

People have been given a clearer idea of how much money they might need for retirement following the launch of “retirement living standards”.

The aim of the standards is to give individuals an idea of what type of lifestyle they will have on different retirement incomes – and to help them plan for the future.

Figures in the pension industry have welcomed the standards, saying they offer people “practical examples of what they can expect from their lives when they stop working” and make “pension-saving feel tangible”.

This is what you need to know about the standards:

What are they?

The standards have been launched by the Pensions and Lifetime Savings Association (PLSA), a trade association which represents more than 1,300 pension schemes.

Based on research from Loughborough University, the standards relate to three levels of expenditure to help savers “understand how much money they will need to live the lifestyle they want in retirement”.

Minimum annual income

Single person – £10,200

Couple – £15,700

London

Single person – £12,400

Couple – £19,800

Moderate annual income

Single person – £20,200

Couple – £29,100

London

Single person – £24,100

Couple – £33,300

Comfortable annual income

Single person – £33,000

Couple – £47,500

London

Single person – £36,300

Couple – £49,300

The standards are intended to be a rule of thumb and will differ depending on an individual’s circumstances, such as how much state pension they get, if they are mortgage-free or not, if they have dependents, where they live and the cost of social care.

What does that mean for retirement?

The PLSA has worked out what the different standards mean for the everyday lives of pensioners.

Minimum

On a minimum annual income, an individual would be able to afford a £38 weekly food shop, £460 a year on clothes and shoes and a week-long holiday in the UK. They might also be able to redecorate one room in their home each year. However they will not be able to run a car.

Moderate

With £20,200 a year, there will be £46 a week for food, £750 a year for clothes and a two-week holiday in Europe. A three-year-old car could be replaced every decade and annual home maintenance and decoration could also be carried out.

Comfortable

For this category, £56 could be spent on food each week and up to £1,500 on clothes and shoes each year. Holidays would extend to three weeks in Europe and a two-year-old car could be traded up every five years. A person’s kitchen and bathroom could be redone every 10-15 years.

A person with a minimum retirement income could afford nearly £40 a week on food shopping (Photo: PA)

Why are the standards needed?

Retirement planning remains ambiguous and complicated but the PLSA hopes the standards will get people to engage more with their pensions.

“The Retirement Living Standards are aimed at cutting through the ambiguity that currently surrounds retirement planning. We want to help savers think in a practical way about the kind of lifestyle they might lead in retirement,” it said.

By giving examples of future lifestyles on different incomes, people have a clearer idea of what to expect when they finish working.

“Goal-setting can help people plan, and a series of simple standards could transform pensions engagement,” said Nigel Peaple, director of policy and research at PLSA.

“Nearly three-quarters of people believe that retirement living standards would help them to know if they were on track for the lifestyle they want in retirement.”

He said he hoped the standards might transform the way people think about retirement saving in the same way “five-a-day” messages have changed perceptions about healthy eating.

Pensions minister Guy Opperman said: “We have transformed saving for retirement for millions of people and the next challenge is to make it easier for them to engage more with their pensions. It’s great to see what the PLSA has developed which has the potential to help savers think about the future and plan for the retirement they want.”

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