Overview

The Living Wage Foundation’s Living Pension accreditation, which is based on the research, is a voluntary savings target for employers who want to help workers build up a pension pot that will provide enough income to meet basic everyday needs in retirement. Living Pension Employers commit to providing a Living Pension savings level, using either a cash (£2,800) or percentage (12 per cent) target. There needs to be a minimum of 7 per cent, or £1,630, contribution from the employer.

The Living Pension contribution rate has been calculated for various scenarios to reflect the unique experiences of individuals contributing to a pension. Savings rates and cash benchmarks have been determined for individuals working full-time (37.5 hours a week) on the Living Wage, as well as for those working a typical number of hours (30 hours per week) on the Living Wage. These calculations consider people who begin saving at 25 and those who start at 35 (with the latter being an approximation that accounts for the fact that some people spend time out of the labour market).

Summary

In January 2021, researchers at the Resolution Foundation set out a framework through which a living pension could be calculated, identifying the pension contributions required (whether made by employees, employers or the state) for workers to achieve an adequate income in retirement. But the UK has seen significant changes in the economic context since January 2021, particularly with the subsequent cost of living crisis, which saw inflation reach its highest rate since the early 1980s and a rise in interest rates. For instance, between April 2021 and April 2023, the real Living Wage increased by 21.2 per cent and the main price index increased by 16.2 over the same period. This changing economic context means that a number of underpinning assumptions used in calculation of the January 2021 rates needed updating, including: the level of income pensioners will need in retirement; rates of return on pension fund investments and drawdown products; and earnings growth. Under the guidance of the Living Wage Foundation, Resolution Foundation have therefore re-estimated the Living Pension rates; this report explains the new calculations and presents the new rates.

Key findings

- 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 would need £258 a week (or £13,500 annually) and pensioner couples that own their own home would need £395 a week (or £20,600 annually). 

- Those who don’t own their own home will need a substantially higher income: single pensioners who live in the private rented sector would need an additional £6,900 a year (£20,400) compared to a homeowner to achieve an acceptable standard of living.

- When averaged out across different relationship statuses, housing tenures, genders and average life expectancy, the researchers calculated that the average pension pot size needed in addition to a full state pension to achieve an annual income of £19,300 in retirement is £107,800 for 2023-24.  

The amount a worker on the real Living Wage needs to save to build up a pension pot of this size will vary depending on how many hours they work, how many years they work, the age they start saving at and their level of pay. Saving rates vary from 9-15.2 per cent for 25- to 35-year-olds depending on the hours they work and the age they start saving at, assuming they work to state pension age.