Evidence suggests there is a knowledge gap across the UK when it comes to financial matters.

In a recent study, almost three-quarters (73%) of the country were found to fall below the minimum threshold for being ‘financially literate’, exposing a broad weakness in our understanding of personal finances.

This lack of understanding can have negative impacts for a household’s immediate financial health, while also compromising the ability to plan effectively for the future. After all, if you’re finding it difficult enough to keep on top of your finances right now, devising a robust budget for the life you might live in retirement might seem an impossible task.

Practical guidance

For employees who might be wrestling with this challenge, help is at hand. The Retirement Living Standards, devised by the Pensions and Lifetime Savings Association (PLSA), are a series of figures showing how much single people and couples might expect to spend on an annual basis in retirement if they are going to live according to minimum, moderate or comfortable standards.

The PLSA says the underlying aim of developing the standards, which are based on independent research by Loughborough University, is to help cut through the ambiguity around retirement planning and provide savers with a practical view of how much they might need to save in order to secure a certain quality of life in their later years.

But following the latest update to the figures, issued in February 2024, the answer to the question of ‘how much do I need to save for retirement?’ is ‘more than you previously thought’. The data now shows that the annual amount recommended for an individual to live a moderate lifestyle in retirement has risen by £8,000 to £31,300 – an increase of 38% on the previous figure. Increases were registered across all levels.

Clearly, these figures are not definitive and individuals will have their own financial view of retirement, typically supported by a State Pension that currently remains underwritten by the triple lock.

However, the scale of these increases provides a sobering reminder of the impact that inflation has had on the rising cost of living. And, indeed, while some employees will grasp the implications of this change and might adjust their saving strategies accordingly, there is also a risk that others will either be unaware of the need to recalibrate their approach to retirement finances or will not be aware of how to go about it.

Plugging the gap

This is the theme of Pension Attention Season, a now annual campaign coordinated by the Pensions and Lifetime Savings Association (PLSA) and the Association of British Insurers (ABI) with support from major pension industry stakeholders. It aims to promote awareness of pension saving, encouraging people to engage more closely with the realities of their potential finances at the age of retirement.

Employers are clearly in a position to help plug this gap, and employees appear to be open to their help. A study by Aviva found that 79% of workers would like more support in relation to planning for a comfortable retirement and 45% would welcome more information on how to make a pension last throughout retirement.

Consequently, the broad area of retirement support has grown as an area of focus among employers. More specifically, there has been a particular focus on meeting demand among employees over the age of 55.

In reaching the point where they can begin to access their pension, retirement finances can come into sharper focus for this cohort, with recognition that escalating costs have suppressed the real-terms monetary value of their savings.

Boosting pension education

Research has found that the number of employers planning to offer targeted financial wellbeing support to workers over 55 is more than double the number that have provided this help in the past two years. More than four in ten people in their 50s and early 60s who have savings in a DC pension do not know how they plan to access their pensions, showing the importance of education.

Workshops can provide a helpful platform for sharing pension-focused information, whether face-to-face or accessed via digital channels such as webinars, Teams or Zoom. In order to maximise engagement among the employee audience, it’s important that messages are conveyed clearly and presented in a language and tone that makes them feel included and encouraged.

It’s also important to provide a mechanism for answering questions on the topics raised, which might range from general clarifications on terminology and concepts to specific queries about how they might apply to an individual’s particular circumstances. This highlights the value in drawing on the support of regulated financial professionals to provide an authoritative source of guidance and advice.

Tools to plan effectively

Supported with the right information and advice alongside access to financial planning tools, employees can be helped to make better judgements and decisions about their financial needs in retirement.

Ultimately, it’s a very difficult calculation to consider – there’s no definitive answer and it is dependent on a number of fluid factors. But by augmenting a defined contribution auto-enrolment scheme with specific pension information and a broader financial wellbeing, employees have all the tools they need to figure out what’s likely to be right for them.

The information contained within this communication does not constitute financial advice and is provided for general information purposes only. No warranty, whether express or implied is given in relation to such information. Vintage Corporate or any of its associated representatives shall not be liable for any technical, editorial, typographical or other errors or omissions within the content of this communication.