Pensioners need to find an extra £4,800 a year to afford a comfortable retirement as inflation ravages living standards, research has found.
The Pensions and Lifetime Savings Association’s Retirement Living Standards report found some retirees will need to accumulate significantly bigger pots on top of their state pension to reach 'moderate' or 'comfortable' retirement living standards.
Two people sharing costs and receiving the full new state pension would need a £328,000 savings pot to retire comfortably, based on current annuity rates, the research said. This is some £30,000 less than was needed in 2021 due to higher annuity rates, but those investing and using drawdown will need significantly bigger pots.
A couple will need an annual income of £54,500 a year to achieve a 'comfortable retirement' – £4,800 more than in 2021, a 9.6 per cent increase. A ‘comfortable’ retirement is defined as having some luxuries and comforts on top of the minimum lifestyle, such as beauty treatments, theatre trips and a three weeks’ holiday in Europe a year. The figures do not include housing costs.
Investment platform Interactive Investor calculated someone would need to save £215 per month for 40 years to amass £328,000, assuming investment growth of 5 per cent per year. If they invested through a workplace pension, it would cost them £107 per month after tax, with the rest coming from tax relief and employer contributions.
Minimum or moderate retirement living standards came cheaper at £12,800 and £23,300 for one person, but this was still 18 per cent and 12 per cent higher than in 2021, respectively. Inflation has been running higher for essentials such as energy and food.
Emma Douglas, director of workplace savings and retirement at Aviva, said this was “a timely reminder of the importance of factoring the impact of inflation into retirement planning”.
“Record-levels of inflation mean the cost of retiring, as well as the cost of living, is at an all-time high. Pension pots that might have sustained a target living standard in retirement might now fall short, meaning that today’s retirees might consider rethinking retirement plans,” she added.
