There’s a good chance you pay into a personal or workplace pension plan each month, but do you know how much money you’ll need to fund your life after work? The recently updated Retirement Living Standards – from the Pensions and Lifetime Savings Association (PLSA) – can give you an idea of how much annual income you’ll need in retirement. These standards, along with our tools and resources, could help you plan for the future you want.
What lifestyle do you want in retirement?
What do you plan to do when you retire? Do you think you’ll go on many holidays? Will you want to redecorate your house or get a new car at any point? It’s important to ask yourself these types of questions. Knowing what you’ll need to pay for when you stop working can help you determine how much money you’ll need to save.
What are the Retirement Living Standards?
The PLSA has suggested three retirement living standards – minimum, moderate and comfortable – based on research by Loughborough University. Essentially, these standards show you how much money you might need at three different ‘levels’ of lifestyle.
- Minimum – Your basic needs are covered, and you have some money left over for non-essentials.
- Moderate – You have more flexibility and financial security than if you were at the minimum standard.
- Comfortable – You have more financial freedom and can afford some luxuries.
Each standard includes the cost of ‘baskets’ of goods and services. These are goods and services whose prices are assessed over time, partly to track inflation. The standards illustrate the potential costs of home maintenance, food and drink, transport, holidays and leisure, clothing, and helping others. They let you see what annual income a single person might need, as well as a couple.
The figures given only apply to people living outside of London. For more detail, you can head over to the Retirement Living Standards website.
How much income will you need to retire well?
|Single person||£12,800 a year||£23,300 a year||£37,300 a year|
|What standard of living could you have?||Covers all your needs, with some left over for fun||More financial security and flexibility||More financial freedom and some luxuries|
|House||DIY maintenance and decorating 1 room a year.||Some help with maintenance and decorating each year.||Replace kitchen and bathroom every 10/15 years.|
|Food||£54 a week on food (including food away from the home).||£74 a week on food (including food away from the home).||£144 a week on food (including food away from the home).|
|Transport||No car.||3-year-old car replaced every 10 years.||2-year-old car replaced every 5 years.|
|Holidays and leisure||A week and a long weekend in the UK every year.||2 weeks in Europe and a long weekend in the UK every year.||3 weeks in Europe every year.|
|Clothing and personal||
Up to £580 for clothing and footwear each year.
|Up to £791 for clothing and footwear each year.||Up to £1,500 for clothing and footwear each year.|
|Helping others||£20 for each birthday present.||£34 for each birthday present.||£56 for each birthday present.|
Cost and what’s covered for a single person at each level. Similar figures are available for couples too. Table source: PLSA.
These figures should not be taken as advice and you need to consider how these apply to your own situation. You can find out more on the Retirement Living Standards website.
To achieve the minimum living standard, a single person would need an annual retirement income of £12,800. A couple, meanwhile, would need £19,900 a year. At the minimum standard, your basic needs – like food bills – are covered, and you still have some money remaining for fun. For example, you could have a couple of holidays per year in the UK – but not abroad. And this standard doesn’t budget for the cost of running a car.
To reach the moderate living standard, a single person would need £23,300 annually, while a couple would require £34,000. You could afford a car and to have it replaced every 10 years. You could go on a two-week holiday in Europe every year, too. So this standard accommodates more expensive leisure activities.
To achieve the comfortable living standard, a single person would need £37,300 per year. A comfortable income for a couple would be £54,500. At this standard, you can enjoy luxuries, like a three-week holiday abroad. You’d also have more money to spend on a shopping spree.
How much do I need to semi-retire?
Semi-retirement may be beneficial for those who don’t feel financially ready to stop working entirely (or who simply don’t want to). It’s likely you’ll need less money to semi-retire than you would if you were to leave the workforce completely. After all, your employer will still be paying you for the work you do. In this situation, you might decide to take some pension money to supplement your earnings while continuing to save into your plan. Or you may have other savings you want to use before you start withdrawing money from your plan.
How your pension plan can help you reach your retirement goals
By now, you may have an idea of how much money you could need to fund your retirement. And there are various ways a pension plan can help you save towards that amount.
If you put money into a workplace pension plan, your employer usually pays in too. Typically, the minimum they need to pay in is 3% of your 'qualifying earnings'. This is anything you earn in a year between a lower limit of £6,240 and an upper limit of £50,270. But some employers will apply the percentage they pay to all of your earnings, including those above the upper limit.
Your minimum payment is 5% – so the minimum total to be paid in is 8%. Some employers will pay in more than their 3% minimum, and others will agree to match your payments up to a certain amount – meaning if you put in more, they will as well. This can give your savings a boost.
When you have a pension plan, the money put into it is invested, which means your pot has the potential to grow. The longer your money’s invested, the more opportunity there may be for growth. But keep in mind that the value of investments can go down as well as up and you may get back less than was paid in.
A pension plan could also help you achieve your retirement goals thanks to tax benefits. Many people get tax relief on their pension savings. Basically, if you put money into a pension plan, some of the income tax you would’ve paid on that money goes into your pension pot instead. For more information, you can read our article on how pension tax relief works. But note that you might get tax benefits in a different way depending on how your pension scheme works (for instance, if you’re in a salary sacrifice or exchange scheme).
Our pension calculator can highlight how much you could have in your plan in the future. But don’t panic if you’re not where you wanted to be. This tool can just give you an idea of what your pension savings might look like – which could help you decide how much to pay into your plan each month.
What help is available to prepare you for retirement?
If you’re a Standard Life customer and you’d like to check in on how your pension savings are doing, you can do this online or on our app. You can find out more about our online services on our website, or visit our support page for FAQs and ways to get in touch.
And if you’re over the age of 55, why not check out our retirement calculator? This tool will ask you to tell us the value of your pension pot. We can then show you what your monthly retirement income could be, or how much you could get if you take any lump sums from your savings.
The information here is based on our understanding in February 2023 and shouldn’t be taken as financial advice.
Standard Life accepts no responsibility for information in external websites. These are provided for general information.
Tax rules and legislation may change and your individual circumstances and where you live in the UK will have an impact on the tax you pay.