Industry experts have called for “urgent reform” in the workplace pension savings system, after the Pensions and Lifetime Standards Association (PLSA) revealed significant increases across its Retirement Living Standards (RLS), especially moderate.

The update reflects the recent price rises households have faced, particularly in food and energy use, as well as changing priorities following the pandemic, as savers placed increased importance on spending time with family and friends out of the home.

Calculated by the Centre for Research in Social Policy at Loughborough University on behalf of the PLSA, the RLS describe the cost of three retirement lifestyles: Minimum, moderate, and comfortable.

In the latest update, the cost of a minimum RLS increased 12.7 per cent for a single person, rising from £12,800 to £14,400, and 12.3 per cent for a couple, increasing from £19,900 to £22,400.

This minimum standard is also the same as the Joseph Rowntree Foundation’s Minimum Income Standard (MIS) and reflects what members of the public think is required to cover a retiree’s needs, not just to survive but to live with dignity.

In particular, it includes £126 for a couple’s weekly food and drink (including eating out and takeaways), a week’s holiday in the UK, eating out about once a month and some leisure activities about twice a week. It does not include budget to run a car.

The moderate RLS recorded the highest increase in percentage terms, however, as costs increased from £23,300 to £31,300 for a single person and from £34,000 to £43,100 for a couple.

This is due to household energy and motoring costs adding disproportionally to the cost, as well as more significant changes in savers expectations for this standard of living in retirement.

For example, the in-depth discussion groups considered that at the moderate level people should be able to help their family members financially with a budget of £1,000, as well as an additional £100 per month to take family members out for a meal.

The comfortable retirement living standard, meanwhile, increased to £43,100 for one person and to £59,000 for a two-person household, marking a smaller overall percentage increase, thanks to adjustments the discussion groups made to expenditure in some categories.

For example, the research groups determined that a couple really required just one small second-hand car rather than the two cars which featured in previous years.

Further analysis on the updated RLS by Quilter suggested that a single person targeting a comfortable lifestyle in retirement would need a pension pot of £738,000, meaning that the size of a pot needed for a comfortable retirement has grown by nearly £100,000 in one year.

Furthermore, a couple now needs close to a million (£929,000) in joint pension wealth for them both to achieve a comfortable retirement.

The PLSA highlighted the higher cost of living in retirement as demonstration of the “urgent” need for reform of the workplace savings system.

In particular, it recommended that the government look to increase minimum auto enrolment contributions from 8 per cent to 12 per cent gradually over the next decade, split equally between the employer and employee.

Commenting on the update, PLSA director of policy and advocacy, Nigel Peaple, said: “The cost-of-living has put enormous pressure on household finances over the last year and, as the research shows, this is no different for retirees.

“It’s important for workers saving for retirement to remember the standards are not prescriptive targets, they are a tool to help you engage with the type of spending you think you will do in retirement and to help you plan for it.

“It is also worth highlighting that a couple who each has a full entitlement to the state pension will achieve the minimum level, and if each is paid average earnings throughout their working life, they have a good chance of enjoying many aspects of the Moderate living standard.

“Working and saving is likely to vary over a lifetime, for example taking time off to have children, so it is important to adapt workplace pension contributions to make up for periods not saving."

The update has also sparked broader calls for change in the industry, as Scottish Widows head of pensions policy, Pete Glancy, highlighted the updated figures as demonstration of the urgency for the government to establish a Retirement Commission, to look at all of the aspects of retirement planning in the round.

LCP partner, Steve Webb, echoed this, arguing that “without urgent action we are likely to see more and more people facing an unenviable choice between an extended working life or a poor retirement”.

“These latest estimates of the budgets we will need in retirement are a wake-up call to government and the pensions industry alike,” he stated.

Quilter head of retirement policy, Jon Greer, also pointed out that “the major worry is that these figures are all based on the assumption that the pensioner does not have any housing costs on top of any lifestyle costs”.

"Future generations that have not been able to secure a home and are renting in retirement or perhaps are still paying off marathon mortgages then this is going to eat further into someone’s pension pot," he continued.

“There is also the yet to be addressed social care crisis. Many people are living longer but not necessarily in good health and getting the right care can be hugely expensive.”

---