Articles - Living Pension and rewriting the retirement story

Once upon a time, before words like ‘lockdown’ and ‘social distancing’ were part of everyday language, an actuary, and a pension policy manager (that was me) first talked about how employers and workers might better understand that default workplace pension contributions at 8% of qualifying earnings would not provide most people with enough income for everyday living in retirement.

 My actuarial colleague and I had seen the burgeoning success of the Pension and Lifetime Savings Association’s (PLSA) Retirement Living Standards (RLS) in helping savers understand how much income they might need in retirement. However, what savers did not understand was how much they needed to contribute.

 We spent time modelling different assumptions but concluded that a single figure does not work for everyone. What we needed was a much broader solution.

 Inspired by the success of the real Living Wage, we imagined how we might replicate that model. We came up with the Living Pension; a recognised accreditation for real Living Wage employers who provide high quality workplace pensions. The Living Wage Foundation, Resolution Foundation, and Aviva worked together to produce the first report on Building a Living Pension , published in January 2021.

 Like the real Living Wage, the Living Pension would go on to become a voluntary employer accreditation, based on the income required to meet every day needs in retirement. The original research calculated that to reach a Living Pension income, using 2020/2021 prices, required a pension fund of £70,000 plus full state pension. It was calculated that the £70,000 pension pot could be achieved through a pension contribution of 12% of the real Living Wage over an average working lifetime, which is £2,550 per year for 2022/2023. The amount will be reviewed every two years to ensure that the basket of goods remains relevant, and that the contribution rate continues to produce a sufficiently sized pension pot .

 Because of the pandemic and the cost-of living crisis, a pragmatic approach will be needed to implement the Living Pension during these challenging times.

 It was agreed that real Living Wage employers should be required to pay at least 7% of total earnings, with the balance coming from employees. However, it was felt that it could be a stretch for some employers currently paying 3% of qualifying earnings to jump straight up to 7% of total earnings. Therefore, a phased approach was applied meaning employers will have three years to move from qualifying earnings to the first pound earned.

 The new contribution rate is made available and communicated to all employees, but only new starters will be automatically enrolled onto the new contribution rate by default. This avoids a potential consultation process with existing scheme members while making the higher contributions available to all employees.

 It is a pleasure to say this fairy-tale went on to have a happy ending, with the Living Pension launched in March 2023, and Aviva one of the first of six employers to receive the accreditation. We are also the only firm to be a Living Pension, Living Wage, and Living Hours employer.

 Aviva is proud to have been involved in this story from the start. However, this is just the beginning.

 There are over 12,000 real Living Wage employers in the UK. If those employers were also Living Pension accredited and committed to a pension contribution of 12% of earnings, it could mean a happy conclusion to working life and the start of a comfortable retirement for many more employees.

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