A single person will need an annual income of £10,900 for a minimum standard of living in retirement, academics have estimated – but the full basic state pension is just £9,339
Britain’s retirees now need an extra £2,000 a year to afford retirement, figures show, just weeks after the Prime Minister confirmed the triple lock would be axed next year.
Couples will need to find an extra £2,200 to afford basics such as water and heating and holidays on top, after the pension industry’s cost of living estimate was revised in the wake of Covid.
It comes as Britain faces a bill crisis, with inflation up 3.2%, energy at its highest on record and fuel prices at an eight year high.
The Bank of England also expects inflation to soar above 4% by the end of the year and supermarkets have warned of 5% price rises – adding to pressure on vulnerable households.
Meanwhile, the TV licence has been reintroduced for pensioners, adding to the annual cost of getting by.
The warning comes just weeks after Boris Johnson confirmed the triple lock would be suspended next April to prevent an 8% rise for the elderly.
However, Boris Johnson has called time on it until 2023, claiming distortions to wages during the coronavirus crisis mean pensioners would have received a rise of an extra £3billion, based on how much earnings have grown this year.
Instead, the new basic state pension of £179.60 a week is expected to rise by 3.3% from April – in line with the predicted increase in the consumer prices index for September due to be published later this month.
It will also be applied to those born before April 1945 who get a weekly £137.60 that is then topped up to £177.10 by claiming pension credit.
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But the predicted £308-a-year increase will more than likely be eroded by the soaring cost of living – which may work out at more than £458 a year based on energy, TV and council tax alone.
Energy costs are set to rise by 12% from this month – adding £139 to the average annual gas and electricity bill.
Council tax may go up 5% – a typical hike of £60 a year – and groceries could rise by more than £100 a year per person.
Adding insult to injury, all pensioners must pay £159 a year to access their previously free TV Licence unless they get pensions credit.
That means pensioners could be at least £150 a year worse off from 2022.
The retirement living standards study, developed by the Centre for Research in Social Policy at Loughborough University assessed how much pensioners need to live a happy and comfortable retirement.
It looked at how much people need to live a minimum, moderate and comfortable retirement.
It pitched this at three different levels – minimum, moderate and comfortable.
The minimum retirement living standard covers a typical retiree’s basic needs plus some disposable income.
It includes a week’s holiday in the UK, eating out about once a month and some affordable leisure activities about twice a week.
It does not include a budget to run a car.
The annual budget for the minimum standard has risen since 2019 by £700 to £10,900 for a single person and by £1,000 to £16,700 for a couple in 2021.
Through a combination of the full state pension of £9,339 per year, and auto-enrolment in a workplace pension, this level should be achievable for most people, the PLSA said.
The moderate retirement living standard provides more financial security and flexibility.
For example, someone could have a two-week holiday in Europe and eat out a few times a month.
The annual budget for the moderate standard has risen since 2019 by £600 to £20,800 for a single person and by £1,500 to £30,600 for a couple.
The annual budget needed for a comfortable retirement living standard has increased since 2019 by £600 to £33,600 for one person and £2,200 to £49,700 for a couple.
Pensioners and savers told researchers the pandemic had made them rethink retirement.
But while the cost of living is rising, the report authors said the pandemic has made people rethink their finances.
The report said: “The reduced ability to save for the future is a real concern, particularly in light of existing fears that people are simply not saving enough for the kind of lifestyle they imagine for themselves in retirement.”
Nigel Peaple, director of policy and advocacy at the PLSA, said: “It is important that the retirement living standards remain relevant by reflecting real-world price changes and real-world expectations about lifestyles in retirement.
“We hope the updated standards will encourage people to think about whether they are saving enough for the retirement lifestyle they want and, in particular, whether they are making the most of the employer contributions on offer in their workplace pension.
“The pandemic has emphasised the importance of economic security as well as social and cultural participation in retirement.”
How much should you save for your pension?
The most common way to calculate this is by halving the age you start saving at – so if you start at 26 it could be 13%, whereas if you start at 46 it is 23%.
Most workers are also automatically enrolled into a workplace pension with a minimum contribution of 8% which is then topped up – or matched by their employer. Where possible, it’s always worth increasing this limit to stash more away.
Remember, pension contributions are tax-free, so any money you do put away each month won’t be chipped away at by the tax man.