The PLSA has updated its Minimum Retirement Living Standards calculations, revealing a steep rise in costs and the requirement for larger pension pot to achieve each of its three standards – minimum, moderate and comfortable.
The new figures show that a moderate living standard could cost a single person £31,300 in 2023/24, up 34% on 2022/23, while a ‘comfortable’ standard of living, the highest would cost £43,100 a year, up 15% from £37,300 in 2022/23
The PLSA updated its figures to account for annual inflation, perceptions of what constitutes varying levels of retirement and the new State Pension.
Quilter, the wealth manager and financial adviser, has calculated from the PLSA figures that for a single person to achieve a comfortable lifestyle in retirement they would need a pension of pot of £738,000*.
Quilter’s new calculations show that in one year the size of a pot needed for a comfortable retirement has grown by nearly £100,000. Furthermore, a couple now needs close to a million (£929,000) in joint pension wealth for them both to achieve a comfortable retirement.
In January 2023, Quilter calculated using the PLSA’s previous set of figures that a pot of £645,000 was needed for a comfortable retirement. This is partly down to inflation and also related to changes to the composition of the basket of goods used for the index.
Now, a comfortable retirement requires a single person to have an annual income (gross of tax) of £39,387 per year on top of the state pension, which in 2024-25 is £11,500 per year.
AJ Bell calculates that for a comfortable lifestyle in drawdown a single person would now need a pot of £790,000, while a couple would need £890,000.
Tom Selby, director of public policy at AJ Bell, said: “These figures bring into sharp relief the challenge surging living costs pose to those planning for a lifestyle in retirement beyond the very minimum. The demise of gold-plated defined benefit (DB) pensions in the private sector means the onus is on individuals to take responsibility for their financial futures.
“Recent spikes in inflation have clearly made that task harder but there is no magic bullet when it comes to building a retirement pot that matches your goals and spending plans. The key is to save as much as you can from as early as possible, taking advantage of the upfront boost of pension tax relief, tax-free investment growth and, where available, employer contributions. While the fund sizes needed to achieve a moderate or comfortable standard of living might be intimidating, making a realistic budget and setting up a regular savings plan can make the task a lot less painful.”
The PLSA defines a comfortable retirement as consisting of a range of measures including being able to go for a fortnight in a 4* holiday in the Mediterranean every year and three UK long weekends and up to £1,500 a year on new clothing and footwear a year. This year it also includes being able to gift £1,000 a year to support family members.
Royal London’s consumer finance specialist Sarah Pennells points out that the mutual’s own research shows that three in 10 people expect to be paying either rent or mortgage when they retire. “But the Retirement Living Standards don’t take housing costs into account. So, someone who has a mortgage or rent to pay could need several thousand pounds more a year in order to pay everyday bills,” she says.
Jon Greer, head of retirement policy at Quilter added: “There is also the yet to be addressed social care crisis. Many people are living longer but not necessarily in good health and getting the right care can be hugely expensive.”
*Calculations assume an escalating income of 3% based on someone who is aged 66 (which is the current age to receive state pension). All pots rounded to the nearest thousand. For the singles an annuity rate of 5.34% was used. For the Joints it was 4.79%.
