The AON DC Pension Tracker fell significantly during the first quarter of this year, following the Pensions and Lifetime Savings Association update to its Retirement Living Standards.
In February, the PLSA said higher outgoings are now required in retirement to achieve all three of its retirement living standards; minimum, moderate and comfortable. The most significant increase is to the moderate standard, where an additional £8,000 a year would be required for a single person to achieve this standard of living. It marked the first ‘rebase’ of the standards since they were first introduced in 2019.
AON said its own DC Pension Tracker has now returned to 2020 levels, suggesting DC savers’ expected standard of living in retirement have not improved in the last three years.
Matthew Arends, partner and head of UK retirement policy at AON, said: “The latest updates to the Retirement Living Standards not only allow for price inflation but also ‘expectation inflation’ where there is an increase in the expectations of what is required in retirement at each standard of living.
“This expectation inflation was particularly apparent in the increase of the moderate living standard which increased by nearly 35 percent and is now around 75 percent of the comfortable living standard.
“While everyone’s expectations of what constitutes an acceptable standard of living in retirement will differ, this trend will inevitably require an increase in retirement savings. Savers should ensure they pay close attention to their pensions savings and consider whether additional savings may be required to achieve the living standard they want in retirement.”
Over the quarter October to December 2023, AON said its Tracker fell from 77.5 to 59.3, allowing for the impact of the update Retirement Living Standards.
Arends said the results suggest that its savers “are expected to have a significantly lower standard of living in retirement” than was expected at the end of the previous quarter.
AON said that on top of rising energy, food and motoring costs, one of the key drivers of the increases to the living standards has been changing attitudes towards supporting family members and an increased importance given to spending time with friends and family. The amount required for eating and takeaways for a moderate standard of living has more than doubled since 2019.
AON said another significant change to the moderate and comfortable living standards is the greater expectation of the need for retired people to help members of family with day-to-day costs, including food shopping and bills.
Since the retirement living standards were first introduced, the balance between them has remained relatively constant. However, the increases to each of the standards in the 2024 ‘rebase’ have not been equal across the standards.
The minimum standard had the smallest increase of 12.7%, closely followed by the comfortable standard which increased by 15.5%. However, the moderate standard increased by 34.3% which means that it is now around 75% of the comfortable standard, up from 62%.
This unequal shift has increased the gap between the minimum standard and the moderate and comfortable standards. For savers who will comfortably achieve the minimum standard but are targeting a higher standard of living in retirement, the moderate standard is now further out of reach, AON said.
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