Today’s Blog is the third and final instalment of my in-depth look at pensions in the UK, following on from Can we still afford triple lock pensions? (posted on 11th June) & Millions of workers have inadequate pension provisions (posted on 18th June) with today’s offering concentrating on the level of income needed in retirement.
What does Pensions UK say?
Recently released research data by Pensions UK clearly demonstrate that the annual cost of retirement has increased across all standards of living. The new figures highlight the many financial challenges retirees now face and demonstrate that most of us are simply not saving enough for when we retire, with less than 10% of us are saving enough to be able to afford a comfortable lifestyle on retirement.
The Pension UK research shows that the minimum standard of living for a retiree who lives alone now costs £13,900 a year (up £500 from 2025). At the other end of the scale, a comfortable retirement for a two-person household now costs £62,700 (up £2,100 from 2025). So let’s look at the figures in more depth..
The rising cost of living on a pension
The retirement living standards have been researched and calculated by Pensions UK to help people understand how much life in retirement will actually cost. The research is based on in-depth conversations with thousands of members of the public, reflecting what people really think what they will need for a minimum, moderate and comfortable standard of living. It covers pretty much everything in your domestic budget, such as food, heating, household maintenance, leisure activities etcetera.
Thie table below, calculated by the Centre for Research in Social Policy at Loughborough University; shows the annual cost of retirement at each standard, and the increased costs over the last twelve months.
Single-person household
Change since last year
Two-person household
Change since last year
Minimum
£13,900
+ £500
£22,500
+ £900
Moderate
£32,700
+£1,000
£45,400
+£1,500
Comfortable
£45,400
+£1,500
£62,700
+ £2,100
As you can see, the cost of retirement has risen across all three categories, driven by increases in everyday costs such as food, household bills and transport, as well as social activities and hobbies
Most people aren’t saving enough
In last week’s Blog I highlighted the fact that most individuals are not saving enough for even the minimum amount of income needed in retirement. Professor Matt Padley, director of the Centre for Research in Social Policy at Loughborough University, who lead the research, said:
‘We know that many people are not saving enough for retirement, but we also know that for some people it is simply impossible to save any more – you can’t save money you don’t have. By providing a benchmark, the retirement living standards can help us to think through the roles of the state, employers and individuals in ensuring everyone is able to have at least a minimum standard of living in retirement.’
Retirement specialists have warned that costs will be far higher for those further away from retirement, as the figures in the table are based on the current cost of living, therefore younger savers need to adjust for inflation. For example; If a single person currently needs an income of £32,700 for a moderate lifestyle, by 2046 that person will need approximately £54,200, assuming inflation averages 2.5% over the period.
Pensions UK calculates that 82% of the working population will reach the minimum standard of living in retirement, with just 23% expected to reach the moderate benchmark and only less than 10% being able to enjoy a comfortable retirement. The Pension Commission is equally pessimistic and has warned that 15M people are under saving for when they retire.
Many retirees face higher costs
It’s obvious that retirees who live alone will face higher costs than someone who splits domestic bills with someone else. This is mainly because many bills, energy, TV subscriptions/broadband, home insurance, & maintenance etcetera, cost the same whether or not you share with someone else.
When two people receiving the full state pension, they’ll have enough to achieve a minimum standard of living, but retirees who live alone will need to rely on savings to fill the gap. The current full state pension is around £1,350 short of the minimum annual expenditure for a one-person household.
To add fuel to the fire, the table above is calculated on the basis that you own your home, meaning if you pay rent costs in retirement you’ll need to factor these in on top. Currently around 80% of those aged 65 and over in England currently own their own home, but the rate of homeownership is expected to fall to 70% by 2050, at which point, half of all pensioners in poverty are likely to be renters.
How to work out how much you need to save
To enjoy a more comfortable retirement, you’ll need to supplement your state pension with income from a private pension and the contributions to your pension should start ASAP. Do not simply put your money in a savings account at the bank as the growth will be modest, plus it may be taxed. Money in a pension pot will benefit from tax-free investment growth.
Additionally, you should check your state pension forecast to see how much you’re on track to receive. If there are gaps in your National Insurance record, it can either be missing NI credits, such as when you’re an official carer or having a baby, or you may have been self-employed for a period, either way check. You can make voluntary NI contributions for missing years but first claim any Nl credits you’re entitled to.
Finally, do not forget that you’ll generally receive tax relief on any pension contributions up to £60,000 a year, which will significantly boost your savings. So if you’re a basic-rate taxpayer, you’ll receive an extra £20 for every £80 saved into your pension up to the 40% tax threshold..
Accountant’s view
Although this is my third (and last!) Blog on pensions, in truth I have only just scratched the surface of this complex issue. I have tried to provide you with the key information you need, but whatever you take from these blogs, my key message is do not put off saving for a pension as the earlier you start the more comfortable will be your retirement.
Finally, I would like to thank the Pensions Commission, Pensions UK, Loughborough University and Holly Lanyon of Which magazine for providing much of the research that I’ve relied on whilst writing the 3 Blogs.
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Efficiently manage your payroll, HR documentation, and employee communications through our secure employer portal, designed specifically for business administrators and HR professionals.
Manage all employee details, payroll data, and HR documents from one centralised platform. This integration simplifies administration and reduces the risk of errors.
Protect sensitive employee information with advanced security protocols designed to comply with data protection regulations and ensure confidentiality.
Update your information, request appointments, and communicate with your accountant directly from the portal. It simplifies routine tasks, saving you time and effort.
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Do you have enough pension income for a comfortable retirement?
Today’s Blog is the third and final instalment of my in-depth look at pensions in the UK, following on from Can we still afford triple lock pensions? (posted on 11th June) & Millions of workers have inadequate pension provisions (posted on 18th June) with today’s offering concentrating on the level of income needed in retirement.
What does Pensions UK say?
Recently released research data by Pensions UK clearly demonstrate that the annual cost of retirement has increased across all standards of living. The new figures highlight the many financial challenges retirees now face and demonstrate that most of us are simply not saving enough for when we retire, with less than 10% of us are saving enough to be able to afford a comfortable lifestyle on retirement.
The Pension UK research shows that the minimum standard of living for a retiree who lives alone now costs £13,900 a year (up £500 from 2025). At the other end of the scale, a comfortable retirement for a two-person household now costs £62,700 (up £2,100 from 2025). So let’s look at the figures in more depth..
The rising cost of living on a pension
The retirement living standards have been researched and calculated by Pensions UK to help people understand how much life in retirement will actually cost. The research is based on in-depth conversations with thousands of members of the public, reflecting what people really think what they will need for a minimum, moderate and comfortable standard of living. It covers pretty much everything in your domestic budget, such as food, heating, household maintenance, leisure activities etcetera.
Thie table below, calculated by the Centre for Research in Social Policy at Loughborough University; shows the annual cost of retirement at each standard, and the increased costs over the last twelve months.
As you can see, the cost of retirement has risen across all three categories, driven by increases in everyday costs such as food, household bills and transport, as well as social activities and hobbies
Most people aren’t saving enough
In last week’s Blog I highlighted the fact that most individuals are not saving enough for even the minimum amount of income needed in retirement. Professor Matt Padley, director of the Centre for Research in Social Policy at Loughborough University, who lead the research, said:
‘We know that many people are not saving enough for retirement, but we also know that for some people it is simply impossible to save any more – you can’t save money you don’t have. By providing a benchmark, the retirement living standards can help us to think through the roles of the state, employers and individuals in ensuring everyone is able to have at least a minimum standard of living in retirement.’
Retirement specialists have warned that costs will be far higher for those further away from retirement, as the figures in the table are based on the current cost of living, therefore younger savers need to adjust for inflation. For example; If a single person currently needs an income of £32,700 for a moderate lifestyle, by 2046 that person will need approximately £54,200, assuming inflation averages 2.5% over the period.
Pensions UK calculates that 82% of the working population will reach the minimum standard of living in retirement, with just 23% expected to reach the moderate benchmark and only less than 10% being able to enjoy a comfortable retirement. The Pension Commission is equally pessimistic and has warned that 15M people are under saving for when they retire.
Many retirees face higher costs
It’s obvious that retirees who live alone will face higher costs than someone who splits domestic bills with someone else. This is mainly because many bills, energy, TV subscriptions/broadband, home insurance, & maintenance etcetera, cost the same whether or not you share with someone else.
When two people receiving the full state pension, they’ll have enough to achieve a minimum standard of living, but retirees who live alone will need to rely on savings to fill the gap. The current full state pension is around £1,350 short of the minimum annual expenditure for a one-person household.
To add fuel to the fire, the table above is calculated on the basis that you own your home, meaning if you pay rent costs in retirement you’ll need to factor these in on top. Currently around 80% of those aged 65 and over in England currently own their own home, but the rate of homeownership is expected to fall to 70% by 2050, at which point, half of all pensioners in poverty are likely to be renters.
How to work out how much you need to save
To enjoy a more comfortable retirement, you’ll need to supplement your state pension with income from a private pension and the contributions to your pension should start ASAP. Do not simply put your money in a savings account at the bank as the growth will be modest, plus it may be taxed. Money in a pension pot will benefit from tax-free investment growth.
Additionally, you should check your state pension forecast to see how much you’re on track to receive. If there are gaps in your National Insurance record, it can either be missing NI credits, such as when you’re an official carer or having a baby, or you may have been self-employed for a period, either way check. You can make voluntary NI contributions for missing years but first claim any Nl credits you’re entitled to.
Finally, do not forget that you’ll generally receive tax relief on any pension contributions up to £60,000 a year, which will significantly boost your savings. So if you’re a basic-rate taxpayer, you’ll receive an extra £20 for every £80 saved into your pension up to the 40% tax threshold..
Accountant’s view
Although this is my third (and last!) Blog on pensions, in truth I have only just scratched the surface of this complex issue. I have tried to provide you with the key information you need, but whatever you take from these blogs, my key message is do not put off saving for a pension as the earlier you start the more comfortable will be your retirement.
Finally, I would like to thank the Pensions Commission, Pensions UK, Loughborough University and Holly Lanyon of Which magazine for providing much of the research that I’ve relied on whilst writing the 3 Blogs.
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