The Living Pension – a new benchmark for employers
This week’s launch of the Living Pension is a milestone moment for our industry. Research by the Resolution Foundation shows that four in five employees in Defined Contribution schemes are on track for an unacceptable standard of living in retirement. This needs to change and without an intervention like this, many will unknowingly be forced into poverty when they retire.
The new standard focusses on providing a pension pot that will provide enough income to meet basic everyday needs in retirement. It benchmarks the contributions paid into members defined contribution pension pots – helping employees and improving retirement outcomes, building on the success of auto-enrolment.
The Living Pension aims to start to address the issue of retirement poverty by driving up average contributions, improving long term financial wellbeing and allowing employees and employers to plan effectively. We believe the Living Pension should be a cornerstone of benefit design for organisations who are passionate about inclusion.
Isio has been involved throughout the development of the new minimum standard, initially through our role on the steering group, looking at the research presented and helping to convert this into something simple and easy to implement. We have also been involved as advisors to Coastline Housing, one of just six employers on the Living Pension pilot. Coastline intends to go live with the Living Pension accreditation from 1 April 2023.
Coastline has used the Living Pension standard to consider how best to focus its pensions offering across its people, and how to integrate this into its wider reward and benefits package. Using a data led approach, Isio helped identify that, under its previous strategy, it was often the lower paid employees who were contributing the least to their pensions and that current contributions would not provide an acceptable standard of Living in Retirement for all.
Isio worked with Coastline to survey its people, understand their needs, and focus spend on areas where it would have the largest impact and be most appreciated. Coastline has reached an offer which aligns with its values and offers its people flexibility, understanding and empowerment to make choices right for them as individuals. All of this is underpinned by the Living Pension standard.
11,000 employers already commit to paying the Real Living Wage, a measure based on what people need to provide a minimum acceptable standard of living. In the same way, the Living Pension sets a clear target and benchmark to support employees in reaching a minimum income standard in retirement. Importantly, the Living Pension is designed around providing an acceptable standard of living which includes housing costs, one of the important factors in determining someone’s income needs and one where the landscape is changing as home ownership becomes less common amongst younger employees.
During its design, the Resolution Foundation has looked at how much employees will need to save to meet these minimum income standards in retirement and what proportion are currently saving at that level.
Based on 12% of a Living Wage Salary for a 37.5 hour week, to be pro-rated for part time employees. Employers using a 12% total contribution rate and paying at least 7% of this will meet the Living Pension standard.
At Isio, our core purpose is to create better outcomes for our clients, members and society. We are proud to support the Living Pension which aims to do exactly that. We are passionate about ensuring that all employees are able to retire and that their retirement income provides an acceptable standard of living. We will now work with clients to implement the standard, and more widely advise employers to offer a holistic approach to reward.
As the first employers implement this new standard, the continued success will rely on communication. Employees will need support in looking at their existing savings and how this fits with the future contributions and their wider financial position.
Read Isio's comments in the FT Adviser and Pensions Age.
If you would like to hear more about the Living Pension and how this could fit with your benefit strategy, please get in touch.