DC pension holders' expected retirement living standards falling

The average expected living standard in retirement provided by defined contribution (DC) savings is lower now than at the start of the year, the Aon UK DC Pension Tracker has suggested.

The tracker, which measures the expected retirement outcomes of four sample DC pension savers against the Pension and Lifetime Savings association (PLSA)/Loughborough University Retirement Living Standards, fell “steeply” from 62.8 to 58.4 over the past quarter.

In addition to this, Aon noted that the PLSA's Retirement Living Standards were recently updated to reflect growing costs, with this re-assessment making it harder for savers to achieve a comfortable or moderate standard in retirement.

The tracker also revealed a reduction in the return assumptions for growth assets since the previous quarter, suggesting that whilst this will have impacted all members, younger members will have been particularly hard hit.

It clarified, however, that this was partially offset by the increase in expected returns on defensive assets, such as corporate and government bonds, and continued strong investment returns over the past quarter.

Indeed, Aon found that actual investment returns over the quarter were positive which, in isolation, increased the expected retirement incomes for all members.

However, the provider suggested that this was more beneficial for older members with larger DC pots already built up, clarifying that whilst younger members also benefited from this, it will have had less of an impact as their existing fund value is relatively small and the majority of their benefits are yet to be built up in the future.

These factors led to a mixed position for members, as the tracker found that whilst older members’ expected retirement incomes remained broadly flat over the quarter, younger members expected to see a decrease in their retirement income of around £1,000 per annum, primarily due to the reduction in future expected returns.

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