The annual income people will need for a minimum standard of living in retirement has jumped by nearly a fifth in the space of a year, according to an industry body.
The Pensions and Lifetime Savings Association (PLSA) regularly publishes retirement living standards, to give people an idea of the amounts they may potentially need in retirement, whether they are aiming for a minimum standard of living, a comfortable standard of living, or a more luxurious comfortable lifestyle in retirement.
In its latest inflation update, the PLSA said the cost of a minimum lifestyle has increased from £10,900 in 2021 to £12,800 in 2022 – or 18% – for a single person and from £16,700 to £19,900 – or 19% – for a couple.
Rising food and fuel prices have contributed significantly to the increase in the amounts retirees need for a minimum standard of living, the PLSA said.
Based on research by the Centre for Research in Social Policy at Loughborough University, the retirement living standards consider outgoings such as household bills, food and drink, transport, holidays and leisure, clothing and social and cultural participation.
The standards are regularly reviewed to keep up with changes in people’s expectations of what retired households need as well as price rises.
The PLSA said the minimum retirement income standards reflect what is needed for people to live with dignity.
The minimum standards include, for example, £96 for a couple’s weekly food shop, a week’s annual holiday in the UK, eating out about once a month and some affordable leisure activities about twice a week. This level of income does not include a budget to run a car.
The disproportionate increase in the cost of retirement for those on minimum retirement living standards means the UK Government’s commitment to the state pension triple lock, confirmed in the autumn statement, is especially important, the PLSA argued.
Rising by 10.1% to £10,600 per year, a couple who are each in receipt of a full new state pension would reach the minimum retirement living standards.
The PLSA added that a single person could also meet the minimum standards if they were able to supplement the full new state pension with income from a workplace pension.
The moderate retirement income level has increased by 12%, from £20,800 in 2021 to £23,300 in 2022 for a single retiree and by 11%, from £30,600 to £34,000 for a couple.
A couple with a moderate living standards in retirement could spend £127 on the weekly food shop, have a two-week holiday in Europe and eat out a few times a month, under the modelling.
The standards for retirees enjoying a comfortable lifestyle meanwhile factors in regular beauty treatments, theatre trips and three weeks holidaying in Europe per year. A couple could spend £238 per week on food shopping.
The income level needed for this has increased by 11% for a single person, from £33,600 in 2021 to £37,300 in 2022, and by 10% from £49,700 to £54,500 for a two-person household.
The increased cost of running a car at the moderate and comfortable retirement living standards levels over the past year has resulted in this element of the budget increasing, the PLSA said.
But higher interest rates may help to alleviate some cost pressures from higher prices, as retirement annuity rates, which give pensioners an annual income, have been improving.
Nigel Peaple, director of policy and advocacy at the PLSA, said: “The past year has been an enormously challenging one for many households in the UK.
“Inflation has risen to its highest rate in 40 years with the cost of essentials and domestic fuel soaring, putting substantial pressure on incomes for working age and retired households, particularly for those on low incomes.
“These figures underline why the Government was right to increase the state pension in line with the triple lock in the autumn statement.”
Phil Brown, director of policy at People’s Partnership, provider of the People’s Pension, said: “These revised figures from the PLSA are further proof, if needed, that few are immune from the cost-of-living crisis.
“Our own research has previously shown that through pension saving alone, only 18% of the population would achieve a moderate standard of retirement while 4% would enjoy a comfortable retirement, and it is highly likely that number has reduced in recent months.”
Emma Douglas, director of workplace savings and retirement at Aviva, said: “The amounts by which each income level has risen is a timely reminder of the importance of factoring the impact of inflation into retirement planning, to ensure that living standards are maintained throughout retirement.
“Record levels of inflation mean the cost of retiring, as well as the cost of living, is at an all-time high. Pension pots that might have sustained a target living standard in retirement might now fall short, meaning that today’s retirees might consider rethinking retirement plans.
“Employees approaching retirement without the pension pot they would like could reduce their hours rather than fully retiring.
“This could be a win-win for employers and employees. Employers keep experienced staff and employees boost their pension contributions and are less reliant on their pension fund.”
A Department for Work and Pensions spokesperson said: “Automatic enrolment has succeeded in transforming pension saving, with more than 10.8 million workers enrolled into a workplace pension to date and an additional £33 billion saved in real terms in 2021 compared to 2012.
“Our ambition for the future of automatic enrolment will enable people to save more and to start saving earlier.
“However, we also recognise current concerns with rising prices and are committed to ensuring people have the support and information they need to make informed choices about their financial futures, with free and impartial guidance available via Pension Wise and Money Helper.”
Here are some further details about the retirement living standards for a couple, as set out by the PLSA:
Minimum – £96 per week to spend on food and £12 on alcohol. No car. A week’s holiday and a long weekend in the UK every year. £460 per person annually for clothing and footwear.
Moderate – £127 per week to spend on food and £20 on alcohol. A three-year-old car replaced every 10 years. Two weeks’ holiday in Europe and a long weekend in the UK annually. £791 for clothing and footwear per person annually.
Comfortable – £238 per week to spend on food per week and £26 on alcohol. Two cars, replaced every five years. Three weeks’ holiday in Europe annually. Up to £1,300 per person for clothing and footwear annually.
Published: 12/01/2023 by Radio NewsHub