14 October 2021
The Pensions and Lifetime Savings Association has published an updated version of its “rules of thumb”, designed to help people appreciate the income they will need in order to lead a certain lifestyle in retirement. This is the first update since they were launched two years ago (see Pensions Bulletin 2019/40).
As before, there are three levels as follows:
- The minimum living standard (“covers all your needs, with some left over for fun”) now requires an income of £10,900 pa for a single person and £16,700 pa for a couple; these figures have increased from £10,200 pa and £15,700 pa respectively
- The moderate living standard (“more financial security and flexibility”) now requires an income of £20,800 pa for a single person and £30,600 pa for a couple; these figures have increased from £20,200 and £29,100 pa respectively
- The comfortable living standard (“more financial freedom and some luxuries”) now requires an income of £33,600 pa for a single person and £49,700 pa for a couple; these figures have increased from £33,000 pa and £47,500 pa respectively
Further details are provided by the PLSA via a series of graphics here. As before, they also make clear that higher amounts are required if living in London – particularly at the minimum and moderate levels. The PLSA also reports that 50 pension providers, schemes and organisations are now making use of these standards and estimates that over 14 million people see them referred to in communications about pensions and retirement planning.
In the main, the standards have been updated to reflect inflation in the intervening period. However, there has also been some reflection of changing attitudes towards retirement lifestyles as a result of the Covid-19 pandemic, most notably more money for eating out, a higher personal grooming budget – and the inclusion of a Netflix subscription.
As in 2019, the list of goods and services was decided by a sequence of discussion groups, working from the list settled on in 2019 and changing components as thought appropriate. They did this in June and July this year by considering whether what is needed for a moderate or comfortable standard of living in retirement in 2021 is the same as it was in 2019 and, if not, what has changed and why? For the next update (due in 2023) the discussion groups will compile the lists from scratch.
Accompanying these documents is feedback on a survey undertaken to assess the impact of Covid-19 on thinking about and planning for retirement. This shows that the pandemic has prompted people to think about their preparedness for retirement and whether or not they are likely to have the resources necessary to provide the living standard they want.
Both reports published by the PLSA include reflections from participants in the relevant research, which make for interesting reading and give valuable insight into how people’s views on what they would consider important to be able to do in retirement have been influenced by their experiences during the pandemic. It will be fascinating to see what the 2023 review captures as the longer-term impacts of the pandemic on norms and expectations for retirement come through.
This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.