Understanding retirement living standards is one of the most practical ways to take control of your future. By knowing what each living standard means for your day-to-day life, you can set clear goals and make your retirement living the best it can be.
At Pension Potential, we want you to feel confident in your choices and empowered to achieve the level of comfort you want for your retirement lifestyle. The figures and categories we use are based on independent research, such as that carried out by Loughborough University, to give you a realistic and trustworthy benchmark.
What Are Retirement Living Standards?
Retirement living standards help you measure the lifestyle your savings can buy. The Pensions and Lifetime Savings Association (PLSA), a leading voice in UK retirement research, has defined three main categories:
- Minimum standard: Also known as the minimum level, this covers basics: food, heating, clothing, and a few affordable leisure activities. The minimum level is a flexible benchmark based on the public’s expectations and essential expenses.
- Moderate standard: A bit more room for comfort, including a yearly week-long UK holiday, some eating out, and more flexibility.
- Comfortable retirement: More financial freedom for regular holidays, a newer car, and extra treats.
The moderate and comfortable standards reflect the public’s expectations for a higher quality of retirement living shaped by changing economic and social factors.
These living standards give you a practical way to see if your pension pot and other retirement savings will support the life you want.
How Much Do You Need for Each Living Standard?
The lifetime savings association reviews the annual expenditure needed for each living standard annually based on common costs for each lifestyle level:
- Minimum standard: £12,800 a year for a single person, £19,900 for a two-person household
- Moderate standard: £23,300 a year for a single person, £34,000 for a two-person household
- Comfortable retirement: £37,300 a year for singles, £54,500 for couples. These figures are only a guide as costs will vary depending on your circumstances, such as whether you own your home, pay rent, need social care, or have specific income tax obligations. This tax may apply to some sources of retirement income, so it should be considered when budgeting for your retirement. Lower energy prices have recently reduced the minimum level costs for some households, making it more affordable to meet basic needs. According to recent research, three-quarters of savers are currently on track to meet the minimum retirement living standard.
These gross income figures include everyday living costs and extras like travel, eating out, and, at the moderate and comfortable standards, two streaming services, and a year’s charity donation.
Check Your Pension Potential
Start with your pension statement and check your likely retirement income using a trusted pension calculator (find one at Pension Potential). Add up your pension savings, state pension, and any other savings you plan to use. Pension schemes, including workplace and personal pensions, are key sources and should be included in your calculations.
Compare your expected pension income with the annual expenditure for your chosen retirement living standard. Are you on track for a comfortable retirement, or is there a gap?
Not everyone retires in the same way, and retirees live in many different arrangements. Many choose shared living with a romantic partner or others, which can help share costs and shape different retirement lives. These different living arrangements can have a big impact on your retirement planning and the standard of living you can achieve.
Inflation and Retirement Savings
Inflation is one of the most important factors to consider when planning your retirement living. As prices rise over time, the purchasing power of your pension income can shrink, making it harder to maintain your desired lifestyle. Recent research from the Lifetime Savings Association (PLSA) shows just how much of a difference inflation can make: the annual expenditure for a comfortable retirement has risen to £43,900 for a single person and £60,600 for a couple. This means your pension pot and other retirement savings need to keep pace with rising living costs if you want to enjoy the same standard of living in later life.
The state pension is still a big part of retirement income for many, but remember the full state pension is currently a guaranteed income of £11,973 a year. This will get you to the minimum standard of living, but to achieve a moderate or comfortable retirement, you will need additional pension savings and possibly other sources of income. As the state pension age rises, planning becomes even more important to make sure you have enough to cover your annual expenditure.
The PLSA Retirement Living Standards are a practical way to see how inflation affects your retirement plans. For example, what non-retired people expect as a minimum, like a week-long UK holiday, affordable leisure activities, or a monthly meal out, can become more expensive over time. A moderate lifestyle, which might include a long weekend break, regular beauty treatments, and more extensive bundled broadband or streaming services, will also see costs increase as prices rise.
It’s not just leisure and travel that are affected. Everyday living costs like energy costs and rail fares can have a big impact on your retirement budget. The good news is that some costs, like weekly domestic fuel budgets, have fallen by more than a quarter recently, so if you’re aiming for the minimum standard, that’s some relief. But other costs like food and transport are still rising, so review your spending categories regularly.
To protect your financial security and maintain your chosen retirement living standard, consider increasing your contributions to your pension whenever you can. The PLSA suggests aiming to save at least 12% of your annual income into your pension pot to offset the effects of inflation. Review your investment growth and explore other savings options to make sure you keep up with the cost of living.
Boost Your Retirement Living Standards
Small steps now can lead to more financial security later. You might consider:
- Increasing your pension contributions if you can, automatic enrolment means your employer helps too
- Consolidating old pension pots (but check with pension providers before moving money)
- Review your options every year as your circumstances change. When reviewing your plan, consider costs for supporting family members, such as helping with grandchildren’s activities or other family-related costs. Annual reviews should also account for the costs to maintain your home, which can vary depending on your chosen living standard.
The PLSA recommends reviewing your retirement savings plan at least once a year to keep you on track.
Final Thoughts
Your retirement living standards set the stage for your retirement living. It doesn’t matter if you’re aiming for a moderate standard or a comfortable retirement; knowing your targets and planning makes all the difference. Remember your pension pot, your state pension, and any other savings, and add them to your future.
If you want to see how your savings stack up or find ways to reach the next living standard, visit Pension Potential for tools, checklists, and advice to get started.
