Why it’s time to deliver a Living Pension standard

This year marks the 20th anniversary of the Living Wage, a campaign to provide workers and families with a wage that meets their everyday needs. The campaign started with community organisers and low paid workers in East London, and has now grown into a movement of over 8,500 accredited employers that are committed to paying a real Living Wage. To date the campaign has resulted in well over 250,000 pay rises, with an additional £1.3 billion going to workers.

Despite the success of the campaign, over the last few years the Living Wage Foundation has started to look at measures beyond pay to set a benchmark for fair working conditions and to help employers that want to do more. This started with the Living Hours accreditation piloted in 2020, providing workers with a guaranteed minimum of hours and stable notice periods for shift patterns, alongside being paid the Living Wage.

Now, we want to go further, and help people plan for retirement so that they will not have to work beyond an acceptable age to maintain their standard of living, or risk entering poverty in later life. According to Age UK research, there are 2.1 million pensioners living in poverty today, and this has been steadily rising over the past few years. Some groups are at particular risk, with 38% of private tenants and 36% of social rented sector tenants living in poverty compared to 14% of homeowners. Similarly, 33% of Asian or Asian British pensioners and 30% of Black or Black British pensioners are in poverty compared to 16% of White pensioners.

Moving beyond the auto-enrolment minimum

The introduction of ‘auto-enrolment’ created a sea change in pension saving in the UK, with 10.2 million workers now saving for retirement for the first time. But it is widely viewed that the statutory minimums are not going to be enough. That is why a Living Pension is needed in order to increase the retirement savings for lower earners and close that gap.

Earlier this year the Resolution Foundation published its Building a Living Pension report on the feasibility of a Living Pension savings target. They concluded that this could be delivered using the same broad principles as the Living Wage. After looking at a range of age cohorts, along with different relationship and housing situations, the Resolution Foundation landed on an average 16.1% provision needed for a full time Living Wage employee, which in monetary terms equates to £3,000 per year. When compared with auto enrolment minimums, this is double the 8% minimum currently in place.

A Living Pension standard alone will not solve the pension savings gap, and it must be accompanied by clear communications and a focus on improving employee understanding of pensions. The great work of the Pensions and Lifetime Savings Association (PLSA) on the Retirement Living Standards has helped individuals to better understand the pension income they need to target. However, no amount of education will close the gap for those who simply cannot afford to save more in the first place.

This is why the Living Wage Foundation believes there needs to be a simple and accessible target for all to achieve an acceptable standard of living in retirement, as in their working lives. By creating a Living Pension the aim is to ensure everybody can meet their everyday needs beyond retirement.

What would a Living Pension look like?

The Living Wage Foundation is currently consulting employers to understand interest, opportunities and challenges in implementing a Living Pension standard. Employers are encouraged to complete this short survey to register their interest and provide feedback on pension provision and any plans in this area. Once this is complete, this will inform the development of future accreditation standards to complement the Living Wage.

We all need a wage that allows us to thrive, and we all need security and stability in retirement. The Living Pensions work aims to build on the successful foundations laid by the Living Wage campaign, in order to deliver not only secure jobs, but secure retirements.

The author is Shelley Morris, senior project manager at the Living Wage Foundation.

This article is provided by the Living Wage Foundation.