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Please sir can I have some more?

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With fewer people actively accruing in final salary pension schemes and more individuals than ever reliant on defined contribution pensions for their retirement it has often been debated how much you need to save for an adequate income in retirement. Much of the work in this field has been around how much you need to put away, and for how long, to secure a decent pension.

Automatic enrolment has seen millions more people saving for retirement, but at what are generally accepted to be inadequate levels. It is easy to recognise the need to save more but in practice, everyone has different priorities. It can, however, be a hard sell to persuade people bringing up a family and paying a mortgage to save more for a retirement that is perhaps many decades away.

Should we be looking at how much money is required in retirement? Instead of focusing on how much is being put away, the Pensions and Lifetime Savings Association (PLSA), in partnership with the Centre for Research in Social Policy (CRSP) at Loughborough University, are tackling the problem from the other end. Rather than starting from how much people are saving, they have considered what is needed for an adequate income in retirement. Their research produces a range of living standards (minimum, moderate, and comfortable) to inform individual thinking and planning for retirement. They have calculated how much both single people and couples would need to be able to spend each year for each level of living standards.

The amount needed each year for single people/couples are £33,000/£47,500 to be comfortable, £20,200/£29,100 for a moderate retirement, and £10,200/£15,700 for a minimum retirement. Minimum is higher than subsistence levels and is set so retirees would have the opportunities and choices necessary to participate in society. (A second table has been produced for London and the South East in recognition of the higher cost of living, and the amounts needed in in this area are slightly higher.)

Anything which persuades people generally to save more for their retirement is to be welcomed, and we fully support this initiative by the PLSA and CRSP.

Whilst the final figures are based on a wealth of research and costings into the various baskets of goods and services pensioners will need at each level, they are still a bit of a blunt tool. They assume the need for income remains level throughout retirement, so for example, a couple of the same age who retire at age 65 will need the same annual income at 65, 75, 85 and 95 etc. Further refinements may be needed in actual cases.

Experience suggests that, when people retire, they may spend more initially going on holidays, buying a car, or on home improvements. They are to be assumed to be in fairly good health though. Fast forward 30 years, and they may no longer be driving or want to go abroad, but they are also likely to be less healthy than when they were age 65, and may need less disposable income. However, they may require care which could be expensive, meaning they actually need more money than they did previously. Income needs are likely to change through retirement.

All that said, this research has much in it to be commended, and will play an important role in the debate on what is needed for an adequate retirement. Employees, and their employers, relying on paying minimum levels of contributions under automatic enrolment might find it difficult reading.

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