The expected future living standard in retirement provided by defined contribution (DC) savings improved in Q2, although it is yet to return to the level reached before the 2023 update to the Retirement Living Standards, Aon's UK DC pension tracker has revealed.

Aon's DC tracker rose “steeply” from 60 to 65.2 during the quarter, driven primarily by the April 2024 increase in the state pension, together with increases in post-retirement expected investment returns.

According to the tracker, all members benefited from the 8.5 per cent increase in the state pension, although the oldest saver saw the largest proportionate increase, given the state pension makes up a larger proportion of their expected retirement income.

Indeed, the oldest saver saw an increase of £1,090 per annum, around 5 per cent, almost entirely driven by the increase in state pension that occurred during the quarter.

"Following this increase, the state pension now accounts for around 80 per cent of the single person’s minimum retirement living standard before any other form of pension saving is taken into account," Aon partner and head of UK retirement policy, Matthew Arends, pointed out.

"This demonstrates the importance of the state pension and how fast it increases, particularly to those on lower incomes.”

However, the 50-year-old saver saw the biggest improvement, with an increase in expected retirement income over the quarter of around £1,800 per annum (4.9 per cent) when compared with the start of the quarter.

Aon explained that, as well as benefitting from increases to the expected post-retirement investment return and the increase in the state pension, this saver also benefited the most from the positive investment returns over the quarter due to their larger existing funds.

This was not isolated to this age group, however, as Aon pointed out that the increase in expected return assumptions along with positive performance over the quarter had helped to boost expected retirement outcomes for all members.

"The retirement expectations of our sample members are influenced both by recent experience, such as increases to the state pension and actual investment performance, along with forward-looking expectations such as future investment returns," Arends said.

"In Q2 most of these elements improved, leading to a sharp increase in the DC Tracker."

However, Aon pointed out that, despite the recent improvements, the expected living standard in retirement provided by DC savings remains below the level reached before the 2023 update to the Pensions and Lifetime Savings Association's retirement living standards.

This means that all savers are further from reaching a ‘comfortable’ standard in retirement.

In particular, Aon revealed that 40-year-old and 50-year-old savers are now expected achieve an income in retirement broadly mid-way between the moderate and comfortable standards, whilst the youngest saver is currently expected to achieve an income in retirement only slightly above the moderate standard.

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