Pensioners face a sharp increase in living costs due to the increased cost of living, new research reveals.
The Pensions and Lifetime Savings Association’s latest Retirement Living Standards has found that the price of a ‘moderate’ retirement for a single person is now £31,300, up from £23,300, representing a 38% rise.
For a couple the cost grew to £43,100, up from £34,000 the year prior – a jump of 31 per cent.
For a ‘comfortable’ retirement, the income needed was up 17 per cent for a single person and 9 per cent for a couple. Meanwhile, the amount of income needed for a minimum retirement increased by 16 per cent for a single person and 8 per cent for a couple.
The PLSA headline figures are after tax, so more will be needed as pre-tax income.
The ‘comfortable’ retirement standard comprises all the basics, plus additional flexibility and financial security and some luxuries, such as regular beauty treatments, theatre trips and a two-week holiday in Europe a year. The standards exclude housing costs as most own their own home by the time they retire. Increases to the comfortable standard in 2024 were driven by energy and food costs, as well as by additional motoring and holiday costs.
The upcoming increase to the state pension will go some way towards bridging the gap but remains insufficient. The state pension will go up by 8.5 per cent in April 2024, jumping from the current £10,600.20 a year to £11,501.22.
The PLSA also noted that higher annuity rates improved the level of guaranteed income retirees can expect to receive through an annuity, partially compensating for cost increases. The same does not quite apply to pensioners who opt for drawdown, however.
Nigel Peaple, director of policy & advocacy at the PLSA, said that “The cost of living has put “enormous pressure on household finances” over the last year and this is no different for retirees”.
“It’s important for workers saving for retirement to remember the standards are not prescriptive targets, they are a tool to help you engage with the type of spending you think you will do in retirement and to help you plan for it.”
The PLSA said the changes reflect the price rises that households have faced, particularly in food and energy use.
It also highlighted the increasing importance people place on spending time with family and friends out of the home, as people’s priorities have changed following the pandemic.