One of the most important elements of employee financial wellbeing is retirement preparation, with many people expecting their employer to support their readiness for this stage of life. So how much do your employees need to live on in retirement? There is no right or wrong answer to this question as much depends upon individual lifestyle, where they live, whether single or a couple or whether they have dependants to support and health considerations.
In 2019 the Pensions and Lifetime Savings Association (PLSA) offered a guide to retirement savers by undertaking research, with Loughborough University, which considered the cost of living in retirement throughout the UK [1]. The findings identified three standards of living:-
- Minimum - where essential needs could be met
- Moderate - which allows for some additional spending on non-essentials
- Comfortable - which allows for more discretionary spending on luxuries.
Allowing for inflation, we have set out below the current net of tax annual income required to meet these standards of living [1]:
| Standard | Single Person (per annum) | Couple (per annum) |
|---|---|---|
| Minimum | £10,500 | £16,100 |
| Moderate | £20,700 | £29,800 |
| Comfortable | £33,800 | £48,600 |
Those living in London and the South East may expect to need between 15% and 25% more, reflecting higher living costs.
Everyone is different and the lifestyle enjoyed while working may determine individual expectations of retirement. While it can be hard to envisage what one’s older self will want out of retirement, planning for it is the best way to retain as much choice as possible. Respondents in the research emphasised the importance of peace of mind in retirement and not having to worry about money as a key requirement.
How much to save?
Getting a forecast of your State pension is essential - you can do so at https://www.gov.uk/check-state-pension. However, the State pension alone is unlikely to meet the minimum retirement living standard and it doesn’t start till age 66 (67 from 2028), private savings to bridge the income gap are essential. Working out how much to save to provide the desired retirement lifestyle is not straightforward as several factors are at work:
- The living standard your employees want in retirement,
- The age at which your employees start saving,
- When your employees prefer to retire,
- The investment returns achievable on your employees savings,
- Whether your employees are saving alone or as a couple.
The power of workplace advice
All this can seem overwhelming and it is easy to give in to the temptation to put off saving for another day. LEBC can offer access to workplace advice for your employees. They'll assist your employees by:
- Setting employees retirement income goals
Understand how much income employees will need to meet a minimum acceptable retirement lifestyle and how much they will want to support their desired lifestyle.
- Assessing the gap between pensions and investments and employees goals
The gap can be filled by adjusting their savings, altering the investment risk taken or the timeframe to retirement.
- Reviewing the ongoing savings employees can afford to make
Saving a little more each year can make a big difference to an employees final retirement pot. Taking advantage of workplace schemes and tax breaks can turbo charge their savings.
- Selecting an investment strategy for your employees
This needs to take account of the timeframe to retirement and the amount of risk employees have the capacity to take. Selecting investments with the potential to beat inflation may help employees achieve their goals sooner but needs to be balanced with investments less susceptible to market volatility.
- Monitoring employees progress
Help your employees plan for their future, rather than hoping for the best. Their plans may face setbacks or become more easily achievable. But workplace advisers can help your employees adjust from an informed position with an annual review.
You can access our help with this through our Workplace Advice Service. For a free no obligation call to find out more just get in touch online or speak with your usual LEBC contact.
[1] Pension and Lifetime Savings Association – Retirement Living Standards https://www.retirementlivingstandards.org.uk/
The information contained in this article is based on the opinion of LEBC Group Ltd and does not constitute financial advice or a recommendation to any investment or retirement strategy, you should seek independent financial advice before embarking on any course of action.
A pension is a long term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Pension income could also be affected by interest rates at the time benefits are taken.
When investing your capital is at risk.
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