'Comfortable retirement' costs rise by £4,500 a year

Pensioners now need an extra £4,500 a year for a comfortable retirement due to the increased cost of living, new research has shown.

The Pensions and Lifetime Savings Association’s Retirement Living Standards calculate how much pensioners need every year for a minimum, moderate or comfortable living standard in retirement. The updated figures for 2024 showed that the cost of a comfortable retirement is up by 15.5 per cent, from £37,300 a year to £43,100 a year for one person, and by 8.2 per cent from £54,500 to £59,000 for a couple.

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.

Couples aiming for a moderate or minimum living standard also faced a hefty cost increase. At the moderate level, annual costs went up from £34,000 to £43,100, or 26.7 per cent. For a minimum retirement, a couple now needs £22,400, a 12.3 per cent increase on last year.

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.

A couple aiming for a comfortable retirement standard would get a total of £23,000 from two combined state pensions and would need an additional combined pre-tax income of £44,464 to make up the rest. Depending on annuity rates, the couple’s circumstances and their health, they might need pensions worth between £280,000 and £450,000 each to secure that level of income through an annuity.   

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.

Alice Guy, head of pension and savings at Interactive Investor, said that the amount needed for a moderate retirement has "skyrocketed" during the past year. 

"The sad reality is that many people aren’t saving enough for a comfortable or even a moderate level of retirement. Those on a low income or saving the minimum amounts into their pension will struggle to achieve enough," she said.

The IC guide to pensions 2023