Without intervention, many people will unknowingly be forced into poverty when they retire. The Living Pension standard will help more workers build up a pension pot that will provide enough income to meet basic everyday needs in retirement.
More than half of current pension savers feel like they’ll never be able to retire. And more than a third of people are not confident they are saving enough to meet even basic needs in retirement.
These findings are from research by the Living Wage Foundation and Savanta, which polled more than 3,000 pension savers in the last year.
Although these figures are worrying, they won’t surprise some of us.
Recent government figures indicated that half of working-age people (17.7 million) are projected to have a pension income below a Moderate Standard.
And more than one-tenth of working-age people (4.1 million) are projected to have a pension income that falls below a Minimum Standard.
These categories are based on the PLSA’s Retirement Living Standards1, which help people to picture the lifestyle they want when they retire and understand what it might cost2.
To achieve a Minimum Standard, a single person would need an income of about £11,000 a year.
To achieve a Moderate Standard, a single person would need about £21,000 a year.
The chances of achieving even a Minimum Standard in retirement are even lower for those of us who will be renting in retirement.
Living Pension standard
It's because so many people are on course for a financially uncomfortable retirement that we support the Living Wage Foundation’s Living Pension standard.
The Living Pension is a voluntary savings target where employers can help workers, especially those on low pay, build up a pension pot that will provide enough income to meet basic everyday needs in retirement.
The Living Pension savings target is 12% of a worker’s annual salary, with the employer contributing at least 7%. Auto-enrolment currently only requires the employer to contribute 3%.
The Living Pension savings target can also be implemented as a cash amount of £2,550 a year, based on 12% of a real Living Wage worker’s salary. The employer would contribute at least £1,448.
Under auto-enrolment, by comparison, a Living Wage employee working 37.5 hours per week would have £1,201 going into their pension each year (with £450 coming from the employer).
The Living Pension accreditation is open to all accredited Living Wage Employers.
To become a Living Pension accredited employer, organisations must ensure the principles of the scheme are applied to all directly employed staff regardless of age and earnings and, over time, third-party contracted staff. New starters should be automatically enrolled onto the scheme.
Employers must also agree to provide an annual communication on the Living Pension to all employees.
Without an intervention like the Living Pension, many people will unknowingly be forced into poverty when they retire.
Employers can play an important role in ensuring that the right foundations are laid for their employees’ retirement. Indeed, this is an area where we believe employers can differentiate themselves in terms of talent recruitment and retention, while also improving the long-term financial wellbeing of their workforce.
The Living Pension standard launched at an event at Standard Life House in Edinburgh on 21 March. Our parent company, Phoenix Group, became one of the first organisations in the UK to sign up as a Living Pension Employer.
1 The PLSA Standards have recently been updated in January 2023. However, this analysis compares pension income against the 2021 Standards. Although the PLSA Standards have separate standards for London and outside of London, this government modelling assesses at a national level, and therefore assesses individuals against the outside of London standards. These estimates are based on State Pension being uprated by the triple lock.
2 Of course, any assessment of the adequacy of future pension income is complex and involves subjective judgement. What an individual may need, or want, in retirement is dependent on their own individual preferences and expectations. Adequacy measures are also affected by uncertain future economic trends. And estimates can change based on the methodology, the measure used and the assumptions made.