PensionReforms' summary and comments
Financial planners tend to suggest that those saving for retirement should aim to replace a significant proportion of their pre-retirement income.  Somewhere between 65-75% would be a typical target.  But is such a target really useful?  A public policy perspective will tend to look at poverty alleviation (or even poverty elimination) issues and may even get to 'participation and belonging' considerations.  But how relevant are these at an individual level?

There is an underlying assumption to individual projections that some connection should be maintained with pre-retirement living standards and those are largely a function of pre-retirement pay.  This report draws together information from a number of sources and summarises what is known about the specific amounts might be attached to various 'standards' in the UK.  It then looks at a number of different 'typical' cases to see what might happen based on modelling of different situations.

"The main calculations of the minimum income required to meet basic needs tend to conclude that a single pensioner needs around £120 per week (after housing costs) in 2008 earning terms, and the calculations of what income a median-earning pensioner would require to achieve an adequate standard of living in retirement (based on expectations) tend to conclude that they would require around £250 per week (before housing costs) in 2008 earnings terms."

There will be significant variations depending on circumstances:
"The main variations are between single and multioccupant households and between single male and female pensioner households."

Other variables will include "...the structure and location of their household and their health needs", also what the pensioner's aspirations might be as to post-retirement living standards.  Those are not static across the period of retirement:
·  "Pensioners tend to spend a large proportion of income on leisure and recreation in the early years of retirement (ages 65 to early 70s).
·   Pensioners tend to decrease spending during the middle years of retirement (around ages 75 to 85) as a result of losses in mobility.
·   Spending tends to increase again around age 85 as a result of the need for health related expenditure.
·   Pensioners tend to reduce spending once more around age 90 as the need for spending on health, fuel, food and housing becomes paramount but expenditure on other goods drops off as a result of either mobility, preferences or the need to conserve income."

Even if pensioners had enough to live on in the early part of their retirement, inflation will have taken its toll by the last stages when health costs become important.

The report's overall conclusions included that most groups failed to maintain pre-retirement living standards throughout retirement from pension income alone.  Those who have complete contribution records (in the state schemes) and consistent occupational scheme memberships have the best chance.

Other findings from the modelling include:
-   Working after the State Pension Age obviously helps to fill income gaps and to ease the transition from work to retirement income dependency - 16% of pensioners in 2006/07 receive some income from employment, up from 11% in 1994/95;
-   Health costs can become really significant where a pensioner (or one of a couple) suffers a disability - unsurprisingly, 80% of people have a moderate to severe disability by age 90;
-   Living expenses per person tend to be lower for couples who share the risk of low work-related pensions and tend to have higher average incomes;
-   A surviving partner tends to have a higher income than a pensioner who has always been single.

According to the Department of Work and Income, about 20% of UK pensioners were in relative poverty, either before or after housing costs in the 2006/07 year.

PensionReforms notes that this area is complex.  It is not easy to understand for public policy purposes what pension systems (both public and private) might be aiming to achieve.  Certainly, the state has a specific role in dealing with poverty, hopefully to the extent of either intervening or encouraging its elimination at all ages but perhaps most particularly at the older ages.  Those older citizens have probably the least number of options in dealing with that issue personally and so are amongst the most vulnerable.

PensionReforms thinks that the more information that is accessible on this topic, the better. (File size 664 KB;  85 pp) 338