The Pensions and Lifetime Savings Association (PLSA) has recently updated its retirement living standards with the rising cost of living and higher expectations around retirement lifestyles increasing the income required in retirement by £8,000.

A one-person household in retirement needs an income of £14,400 per year (or £22,400 for couples) to cover the costs of weekly groceries, a week’s holiday in the UK, eating out once a month and some affordable leisure activities twice a week.

For a moderate retirement, an individual will require an income of £31,300 per year (whilst a couple will require an income of £43,100 per year) to include running a second-hand car, a week's holiday in Europe and a long weekend in the UK.

To have a ‘comfortable’ retirement, which includes running a second-hand car, regular beauty treatment, theatre trips and two weeks' holiday in Europe per year, a one-person household would need £43,100 per year (or £59,000 for couples).

It seems that retirees cannot escape the cost-of-living crisis given that the annual cost of having a moderate income on retirement has risen from £23,300 to £31,300 since 2022/23 - a jump of £8,000.

So how much do you need to save?

One of the options people consider on retirement is an annuity (i.e. converting your savings into an annual pension). The PLSA estimates that an individual would need to have saved £40,000-£70,000 for a minimum standard, £300,000-£500,000 for a moderate standard or £490,000-£790,000 for a comfortable standard.

Most people will be members of a workplace pension and will be able to draw down a pension on retirement. AJ Bell estimates that for a minimum standard of living, an individual will need to have saved £70,000, for a moderate standard £490,000 and for a comfortable standard £790,000.

It may be of some comfort that the state pension will rise by 8.5% from April 2024 to £11,500 a year - a step in the right direction. 

Impacts 

In tandem with the ever-increasing state pension age meaning that people may be required to work longer before claiming their pension, many people may also find themselves in a position where they do not have the savings needed to retire comfortably. This may mean that people never completely stop working but continue to work alongside drawing their pension.

As a result, employers are likely to see an ageing workforce and should start to think about policies and procedures to support them. 

Pensions and retirement may now more than ever be at the forefront of the mind for new hires and current employees alike, so it is worth looking at your current pension offering and what you could be doing to support employees’ retirement plans.

The PLSA is calling for reforms to the workplace saving system, with one of their proposals being that the first step needed is increased employer contributions to match mandatory employee contributions. Watch this space for further developments.

For more information, contact Lauren Broderick or a member of the employment and pensions team.