Most people will now have to work longer or contribute more to their pension in order to maintain the same level of the Pension and Lifetime Savings Association's (PLSA) retirement living standards (RLS), Hymans Robertson has found.

The pensions and financial services consultancy has analysed how different combinations of contribution rate and salary impact the chance of achieving the latest RLS, following the PLSA’s announcement that double-digit increases in annual retirement income are needed this year to achieve minimum, moderate and comfortable standards of living.

An individual will now need £31,000 per year for a moderate standard of living, an increase of 34% year-on-year. For average earners, Hymans Robertson has found that contributions of 16% per annum are required to have a reasonable chance of achieving the moderate standard.

Even for high earners, paying the 8% minimum total contribution rate under auto-enrolment is unlikely to achieve the moderate standard, the firm stated.

Head of digital strategy for defined contribution (DC) pensions at Hymans Robertson, Darren Baillie, said: "The hill that members need to climb to achieve their desired retirement outcome has become shockingly steeper in the last year, partly due to the cost of living crisis. Plugging the savings gap through higher contributions alone is impossible for most people, so to meet the new standards, people will need to work for longer.

"Our analysis shows that a member in their mid-50s, who was on track to achieve the moderate standard before the cost of living crisis, would now need to defer retirement by one to two years to achieve the same outcome."

For a comfortable retirement, an income of £43,100 per year is now needed, a 16% increase on 2023. For those earning a salary of £50,000 per annum, the analysis has shown that a total contribution rate of more than 18% would be required to achieve this comfortable standard, which is out of reach for most people.

Furthermore, £14,400 is now needed to achieve a minimum standard of living, which is an increase of 13% year-on-year. Most retirees who will receive the full state pension are likely to achieve this standard.

Baillie added: "Trustees, providers, and employers need to take several actions to help members understand their pension adequacy and make informed decisions about their retirement. Firstly, they must help members set a retirement income target. This can be an effective way of improving engagement and the RLS provide a useful framework for deriving targets that can be tailored to members’ spending patterns.

"Secondly, they must help members find and understand their state pension entitlement and what it means for the personal pension savings they’ll need for retirement. Finally, they must provide members with the means to monitor progress against their target and understand what changes they can make to improve their outcome."

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