Living Wage data lends weight to 12% contributions call

Analysis from the Resolution Foundation, which calculates the Living Wage, found that the average pension pot required for a basic standard of living in retirement has surged by 60%.

The foundation reported that achieving a basic standard of living in retirement required a pension pot of £68,300 in 2021-22. However, inflation had pushed this up to £107,800 by 2023-24.

Katherine Chapman, director of the Living Wage Foundation, which commissioned the research, said: “The news that workers now require a significantly larger pension pot to cover basic living costs in retirement will undoubtedly be alarming for many, particularly low paid workers who have borne the brunt of rising prices over the past two years.

“These workers are already struggling to make ends meet today, and the prospect of saving for the future feels even more daunting.”

The research found that on average a worker needs an income of £19,300 a year in retirement to achieve a basic standard of living. However, this varies from £13,500 to £28,400 depending on relationship status and housing tenure.

Single home-owning pensioners need £258 a week or £13,500 annually, according to the research, while pensioner couples that own their own home need £395 a week or £20,600 annually.

Those who do not own their own home need a substantially higher income.

The data reflects the Pensions and Lifetime Savings Association’s Retirement Living Standards, which reported earlier this year that a single pensioner needed an income of £14,400 a year to meet basic living standards, while a couple needed £22,400 a year.

Raising contributionsPrevious research by Phoenix Group and WPI Economics has claimed that raising the minimum total contribution from 8% to 12% could bring an additional £10bn a year into the pension system, boosting pots and making more money available for long-term investment, in line with government goals.Other organisations including consultancy group WTW and the Association of British Insurers have previously called for default auto-enrolment contributions to rise to 12% of salary, split equally between employees and employers.The Living Wage research also found that low-paid workers, women, and those living in rented accommodation had more negative feelings toward their retirement savings.Almost a third (65%) of workers that were paid below the real Living Wage felt they would never be able to retire. Even those that received the Living Wage were not positive, with more than half (54%) also concerned that they would never be able to retire.Nearly three in five women (58%) felt they would never be able to retire, compared to 47% of men. A similar proportion of tenants (59%) felt they would never be able to retire, compared to 48% of homeowners.This comes as Royal London’s latest research into workplace pensions and long-term saving found that the current approach to saving for retirement taken by UK workers leaves six in 10 feeling that they are not saving enough.A third of the 3,693 UK workers quizzed said they had been left feeling anxious once they had looked at the amount they had saved.Further readingPLSA reports sharp increase in cost of ‘moderate’ retirement (7 February 2024)Savers less confident over retirement income, study shows (3 July 2024)Trustees urge focus on pension adequacy after election (18 June 2024)