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 per cent - for a single person and from £16,700 to £19,900 - or 19 per cent - 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
- 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 per cent 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 per cent, from £20,800 in 2021 to £23,300 in 2022 for a single retiree and by 11 per cent, 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
- eat out a few times a month
The standards for retirees enjoying a comfortable lifestyle meanwhile factors in:
- £238 per week on food shopping
- regular beauty treatments
- theatre trips
- three weeks holidaying in Europe per year
The income level needed for a comfortable retirement has increased by 11 per cent for a single person, from £33,600 in 2021 to £37,300 in 2022, and by 10 per cent 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 UK 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 per cent of the population would achieve a moderate standard of retirement while 4 per cent would enjoy a comfortable retirement, and it is highly likely that number has reduced in recent months."
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