The expected future living standard in retirement provided by defined contribution (DC) savings continued to improve in Q3, with the Aon UK DC Pension Tracker increasing from 72.7 to 76.9 from July to September of 2022.

Aon also revealed that, unlike previous quarters, if changes to the future return assumptions were ignored, the tracker would still have risen over the quarter as a result of positive benchmark equity, although the increase would have been less pronounced, to 73.1.

Aon attributed the improvement to an increase in expected returns across all asset categories, but it acknowledged that the impact was different for each of the members included in the sample.

According to the update, the three younger members would be expected to be slightly better off in retirement (expected to be around £150-£200 per year better off in retirement).

In contrast, the oldest member was expected to be around £150 per year worse off in retirement due to the fall in the value of their typically more “defensive” bond assets.

The provider explained that the period had seen "historic" levels of volatility in bond markets, leading to a significant fall in the value of bond assets, which in turn reduced the expected retirement income for older savers who has started to diversify into these asset classes.

Despite the improvements, Aon warned that, the "apparently benign" picture for savers masked the fact that the tracker compared against Retirement Living Standards that were set before recent high levels of inflation.

Furthermore, the provider warned that the expected future living standard in retirement would be substantially lower when making allowance for the rise in the cost of living.

Aon partner and head of UK retirement policy, Matthew Arends, commented: “Given the overwhelming majority of DC savers invest in a default fund, trustees should be considering whether their existing lifestyle strategies, and particularly the default investment strategy, are appropriate for their membership.

“They may also want to consider whether they should be doing more to engage with members over their expected retirement choices and investing accordingly.

“Savers should also be reviewing their investment choices, particularly where they have multiple DC pension pots from previous workplaces, which often can be forgotten about or not considered as frequently as their current pension.”

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