The rising cost of living has increased the amount of income needed to provide a minimum standard of living in retirement by 16% to £14,400, according to the Pensions and Lifetime Savings Association (PLSA).
The PLSA’s Retirement Living Standards report reflects the impact of inflation on the amount retirees need to fund retirement. Its latest data shows that the cost of a minimum standard of living in retirement has increased by around 16% from £12,800 to £14,400 in 2024 for a single person, and by 8% from £19,900 to £22,400 for a couple.
If you’re considering getting professional financial advice, Unbiased is offering Rest Less members a free pension review. It’s a chance to have a qualified independent financial advisor (IFA) take a look at your pension arrangements and give an unbiased assessment of your retirement savings.
The review is free and without obligation, but if the IFA feels you’d benefit from paid financial advice, they’ll go over how that works and the charges involved.
The Centre for Research in Social Policy at Loughborough University keeps track of the figures for three different standards of retirement living: minimum, moderate and comfortable. The minimum standard covers basic needs such as groceries and home maintenance, as well as the occasional treat or social activity, such as eating out, gift-giving, and taking a short UK holiday. It does not factor in the cost of owning a car, however.
The amount of income needed for a moderate standard of living in retirement has jumped by 17%, from £23,300 to £31,300 in 2024 for a single person, the PLSA said, and from £34,000 to £43,100 for a couple. This includes the cost of running a car, longer holidays abroad and increases the amount spent on basics such as food.
Meanwhile, the cost of a comfortable retirement includes regular beauty treatments, trips to the theatre, and three weeks holiday in Europe each year. The amount of income spent on food shopping also rises to £130 a week for a couple. The income needed to achieve this standard of living has risen by 17% for a single person, from £37,300 in 2023 to £43,100, and by 9% from £54,500 to £59,000 for a couple. Full tables including lifestyle expectations are included below.
Sarah Pennells, Consumer Finance Specialist at Royal London, said: “This update from the PLSA reflects sentiment we’re seeing in our own research into pensions, savings, and the Cost of Living. Our insights show that people think they’ll need £1,279 a month to live on in retirement, which works out at £15,348 a year – only £1,000 more than the £14,400 that the Retirement Living Standards suggest would pay for a minimum standard of living.
“The reality of living on this kind of income – potentially for 20 or more years – is very few treats, such as nights out, or holidays, and for some having to watch every penny. That’s unlikely to be the kind of existence most people would like as a reward for a lifetime of working.
“But there’s bad news for those who want to be able to spend a bit more on things like food and drink and taking a holiday abroad. For a moderate standard of living, as defined by the Retirement Living Standards, there’s an £8,000 a year increase in how much income someone would need every year. Saving enough to generate an extra £8,000 a year will be difficult for many, and impossible for those closer to retirement.”
Bear in mind that these figures don’t factor in housing costs, so the costs for some pensioners will be much higher. According to investment platform interactive investor’s separate 2022 Great British Retirement survey, around a quarter, or 23% of retirees, don’t own their own home outright so they are paying rent or mortgage costs as well.
The PLSA headline figures are also after tax, so more will be needed as pre-tax income. For example, a single person now needs £31,300 for a moderate retirement, which translates as £35,982 before tax.
Source: PLSA
Alice Guy, head of pension and savings at interactive investor said: “The amount needed for a moderate retirement has skyrocketed during the past year. That’s partly due to damaging impact of inflation, which hits those on a low income the hardest. But it’s also partly due to changing expectations about retirement.
“With ongoing rising costs, older generations increasingly want to help out younger family members. Family ties run deep and after the bleak years of Covid, it’s lovely to see families wanting to spend time together, with additional costs budgeted within a moderate retirement to take out grandchildren and treat family members to a regular meal out.”
Fortunately, there was some good news for retirees in the 2023 Autumn Statement, with the Government confirming it will increase the State Pension in line with the triple lock guarantee. This means it will increase by 8.5% from April 2024, in line with earnings growth. As a result, the new State Pension will increase from £203.85 to £221.20 a week in April 2024. The full basic State Pension will increase from £156.20 a week to £169.50 a week.
Read more in our article What is the pension triple lock?
How to meet the rising cost of retirement
If you’re worried that you won’t have enough to afford your planned lifestyle at retirement, and you can afford to do so, you might want to consider saving more than the minimum automatic enrolment limit into your pension. You can find out more about auto-enrolment in our guide How does pension auto-enrolment work?
Ms Guy said: “The sad reality is that many people aren’t saving enough for a comfortable or even a moderate level of retirement. Those on a low income or saving the minimum amounts into their pension, will struggle to achieve enough for a moderate retirement. Single people also need more than couples to achieve the same standard of living in retirement, as couples are able to share many of their bills.
“It’s important to keep an eye on your pension saving to see if you’re on track for the retirement you want. If you’re falling behind, then it’s worth seeing if you can afford to increase your pension contributions. The magic of pension tax relief means that it only costs £80 to pay £100 into a pension for basic rate taxpayers, and £60 to pay in £100 for higher rate taxpayers.”
You can find out more about pensions and tax relief in our guide How pension tax relief works.
If you’re considering getting professional financial advice, Unbiased is offering Rest Less members a free pension review. It’s a chance to have a qualified independent financial advisor (IFA) take a look at your pension arrangements and give an unbiased assessment of your retirement savings.
The review is free and without obligation, but if the IFA feels you’d benefit from paid financial advice, they’ll go over how that works and the charges involved.
Find out more in our guide How much should I save for retirement?
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