The Pensions and Lifetime Savings Association (PLSA) – which produces figures for Retirement Living Standards every year showing what pensioners will need to access different standards of living once they stop working – said a couple will need £800 per year more for a moderate retirement, but £800 less for a minimum retirement.
Helen Morrissey, head of retirement analysis for Hargreaves Lansdown, said the figures included the state pension and illustrated how hard people will have to work to fill their pensions.
For a moderate retirement, a two-person household will need £43,900 per year, up from £43,100 the previous year.
She said: “This is hardly going to buy you a luxury lifestyle, either – a moderate lifestyle covers all your basics, plus some nice extras such as two weeks in Europe a year and the ability to run a car.
“If you want something more luxurious, then this data shows your pension is going to need to work much harder – a comfortable lifestyle is said to cost £43,900 per year.”
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Minimum, moderate or comfortable
The PLSA living standards sketch out three levels of retirement that savers can aspire to. A minimum standard allows only £50 per week on groceries, no car, and a week-long UK holiday. A moderate lifestyle includes a small car, a two-week European holiday and one weekend break per year. Meanwhile, a comfortable retirement includes three long weekend breaks, four-star holidays and more spent on groceries.
The PLSA said some items had risen in price for retirees, including rail fares, while the amount of money spent on heating homes had fallen. This meant that the minimum living standard, where more money is spent on essentials like heating a home, had fallen.
State pension covers the basics
The figures show that the state pension, which has risen by 4.1 % this year, now covers 90% of minimum living needs.
Ed Monk, associate director at retirement group Fidelity, said the news is less good for those hoping for more and noted they must keep saving.
“The rise in what it takes to give yourself a moderate standard of living in retirement – let alone a comfortable one – underlines the importance of providing your own retirement income. Based on the new PLSA numbers, a comfortable standard of living costs £43,900 of expenditure for a single person. That translates into a pre-tax retirement income of around £52,000.
“That will be simply unattainable for most of us,” he said.
Using the standards
Pension experts said savers should use the standards to consider their own retirement aspirations and save accordingly.
Morrissey said: “The key thing is to think about what retirement means for you – is it lots of travelling or something more sedate? You may find that what you need differs massively. Once you’ve got an idea of what you want, then you can start to put a figure on what that might cost and you can then use online calculators to see if what you’ve got in your pension will get you where you need to be.
“Putting your data in an online calculator can show you what you are on track for in retirement. This will either give you the confidence of knowing you’ve got enough or the time to put a plan in place if you haven’t.
“They can even be used to model the impact of boosting your contributions over time, so you can see how much small changes can help you move towards your retirement goal.”
Other issues to consider
But Andrew King, pensions and retirement specialist at wealth management firm Evelyn Partners, said that while the results were valuable and helpful, investors would need to consider other factors.
These include inflation, which is not factored into the calculations.
He said: “If £43,900 provides a comfortable lifestyle for someone now, the same number will not do so in 20 years’ time.
“In fact, if inflation averages 2.5% over the next two decades, someone who thinks they would need £43,900 a year now will need about £72,000 by 2045 – and that will require a much bigger pot than even the £540k-800k estimated for current circumstances by the PLSA.”
He also said there was a danger that the state pension would be less generous in the future, or available at the same time.
“That doesn’t affect living cost requirements, but it does mean a bigger private pension pot will be needed to provide their desired income, as the state pension can be expected to contribute less,” he added.
