The vast majority of people will fall short of even a moderate lifestyle in retirement, Pensions UK’s updated Retirement Living Standards suggest, as the price of food, household bills and transport has gone up along with the cost of social activities and hobbies.  

Pensions UK expects that about eight in 10 people (82%) can achieve a minimum lifestyle, but few will be able to afford more; only 23% are expected to reach a moderate living standard. Fewer than one in 10 (9%) will have a comfortable standard of living. 

A minimum lifestyle will mean no car, less than £200 for rail fares per year, one UK holiday and just £200 per year to maintain a property, among others. Pensions UK notes that this is out of step with what some people expect for their retirement.

The findings come as the Pensions Commission is working on its final report on how to make pensions more adequate, with the government finding that nearly 15m people are undersaving, meaning pensioners in 2050 are on track to have £800 or 8% less private pension income than those retiring today. 

“Without action, too many risk facing a cliff-edge drop in income when they stop work. The government is right to be considering whether minimum contributions need to rise through the work of the Pensions Commission. In the meantime, tools like the RLS play a crucial role by helping people take control and understand what they might need, so they can put more money away where and when they can,” said Zoe Alexander, executive director of policy and advocacy at Pensions UK. 

Pensions UK previously called for raising auto-enrolment contributions to 12%, as the current 8% will not allow people to reach a living standard above the minimum. As well as reforms, the association wants more employers to step up by offering matching contributions above minimum levels. Alexander suggested individuals should “speak to their employer” to ask for higher contributions. 

The updated Living Standards, calculated by the Centre for Research in Social Policy at Loughborough University, now assume that a lifestyle providing the bare minimum for a single person living outside London – assuming they have no rent or mortgage to pay – can be financed with £13,900 a year, after tax – £14,232 before tax – or £22,500 for a couple, after tax.

With a full new state pension, currently worth £12,547.60 a year, this would still require a defined contribution pot of about £23,000 to £34,000 for a single person. This jumps to £335,000 to £505,000 for a single person aspiring to a moderate lifestyle. A moderate lifestyle requires an income of £32,700 for one person and £45,400 for two, while a comfortable lifestyle costs £45,400 or £62,700, respectively. 

Professor Matt Padley, co-director of the Centre for Research in Social Policy at Loughborough University, acknowledged that for some people, saving more is not possible, adding: “By providing a living standards benchmark, the RLS can help us to think through the roles of the state, employers and individuals in ensuring everyone is able to have at least a minimum standard of living in retirement.” 

This further research for the Retirement Living Standards was funded by LCP, L&G, Mercer, Railpen, Retirement Line, Royal London, Standard Life, TPT Retirement Solutions, Travers Smith, USS, West Midlands Pension Fund, WTW. 

David James, head of pensions at law firm Travers Smith, said: “With the forthcoming launch of the pensions dashboards, members will have access to a lot more information about their pensions savings, so having a tool such as this to help them translate what that information means for their real-life retirement outcomes is more important than ever.”

Mark Ormston, COO at annuity broker Retirement Line, said the work by Pensions UK “brings into sharp focus that resolving the retirement adequacy dilemma can no longer be viewed simply as a challenge of individual financial behaviour, but a systemic issue”.

Anne Jones, senior director at WTW, added: “As an industry we need to do more to help individuals understand their own individual target and how they can get there.”