Are the newly updated Retirement Living Standards up to scratch?
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16 July 2026
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It’s rare that pensions are out of the news, but we’ve seen a sharp focus on whether people are saving enough for a decent retirement and what a decent retirement looks like. The interim report from the Pensions Commission was published in May, estimating a whopping 15 million people weren’t saving enough and we also saw an update to figures that illustrate costs of different lifestyles for retirees, which also estimated that less than one in 10 had a chance of a ‘comfortable’ retirement.
There’s no doubt the headlines are shocking, but it’s important to dig into the detail of how retirement lifestyles are measured and calculated. It’s not a perfect science, but knowing a bit more about they’re calculated can help you work out what you need personally, which might be different to the headline figures.
How much do you need to retire?
Two of the most widely used benchmarks to help people crunch the numbers in the UK are:
- Pensions UK’s Retirement Living Standards (RLS); and
- Target Replacement Rates (TRR).
The RLS are designed to give a guide to what the public thinks should be part of minimum, moderate or a comfortable lifestyle in retirement, and how much they would need to spend to reach these living standards. Each level uses a range of common goods and services to calculate an income figure, after tax.
As a guide, the moderate living standard allows for one two-week holiday abroad together with a UK mini-break every year, some help with DIY, and a used car replaced every seven years. It also allows for takeaways and eating out a couple of times a month as well as money to spend on clothing and personal items.
A TRR takes a different approach. Instead of focusing on spending, it uses your earnings at or before retirement and how much, as a percentage, you need to replace with a retirement income. TRRs assume pensioners would want to maintain the same standard of living in retirement that they had during their working life, and to do that, they’d need to maintain a level of pension income related to their pre-retirement earnings. The Pensions Commission favour using TRRs in their reports.
Rather than fixed monetary values for certain lifestyle targets, TRRs work on what you’d need to replace to meet an ‘adequate’ income.
For example a median earner, would look to replace 67% of their pre-retirement earnings. Someone earning less than £15,900 might need 80% of that in retirement, while anyone earning more than £67,000 may need less, at 50%.
The Department for Work and Pensions (DWP) continues to use TRR to measure whether people are saving enough for retirement. In its 2025 adequacy analysis, the DWP estimated that 43% of working-age people were under saving when measured against their target replacement rates.
What are the limitations of the RLS?
One of the biggest limitations of the living standards is that housing costs are not included in the headline figures. This might reflect retired life for those becoming mortgage free, but we are expecting to see more people continue to rent through retirement or face having to pay their mortgage even as they start accessing their pension. Extra housing costs will of course reduce what you can spend in retirement compared to someone who is mortgage free.
There is also the risk that the pension pot values quoted to generate each living standard, particularly at the top end, simply put people off. Inflation remains very sticky and has been baked on top of the double-digit prices hikes we saw in the cost-of-living crises in the early 2020s. This has all led to the pension pot values required to generate those incomes soaring at a time when many are struggling to make ends meet each month.
The RLS are also not personalised to you, because they reflect a public consensus rather than individual needs. How much I want to spend in retirement and what I want to spend it on will be different to you.
They also assume spending remains at the same level in real terms, when many retirees do not spend the same amount throughout retirement. Spending could be at its highest in the early active years of retirement, then fall in older age with less activity, before rising again if professional care needs to be paid for.
Although the study does share some indicative pension pot figures, these are based on an assumption that an annuity is purchased. That might have been the case in the past, but 90% of people who use their pot to give them a regular income now choose drawdown rather than an annuity.
TRR has limitations too
While a retirement income may satisfy a target replacement rate, it could still be inadequate for pensioner needs when the time comes. Someone on a very low income could achieve a relatively high replacement rate yet still fail to achieve an acceptable living standard in retirement.
The Pensions Commission acknowledged that TRRs work particularly well for middle earners, but lower earners should also aim to meet a minimum standard. Using Pensions UK’s measure, that would be £13,900 for a single person household and £22,500 for two. For the latter, two lots of full new state pension would make the cut, while a single person would still have a gap to bridge at state pension age.
Like RLS, target replacement rates are not personalised and assume living costs are proportional across incomes, failing to consider how housing wealth can shape needs in retirement and how housing costs can be volatile in retirement for those who are not homeowners in retirement.
Which measure is best?
I can’t pick one over the other. It’s vital we look at our own numbers and both measures can help people work out what they might need in retirement.
Retirement Living Standards aim to provide an absolute measure of retirement adequacy and are a good starting point to help translate retirement into something tangible, based on spending. But as we know housing costs, health needs and personal preferences can dramatically increase that spend.
Replacement rates provide a relative measure, showing how retirement income compares with pre-retirement earnings, but might miss the reality of day-to-day spending needs. If you rely solely on a replacement rate, you might achieve your target percentage while still lacking enough income to fund the retirement you want.
A good approach is to start with the lifestyle you want and use the Retirement Living Standards to estimate the income you might require as a start point. You could then use replacement rates to check whether your projected retirement income is broadly in line with your current standard of living. That combination provides a far more reliable guide than relying on either measure alone.
Charlene Young: Senior Pensions and Savings Expert
Charlene Young is AJ Bell’s Senior Pensions and Savings Expert. She joined AJ Bell in 2014 from a wealth management firm where she worked with private clients and small businesses as a financial planner.
Charlene...
