Pension savers have been warned over rising costs, as new figures reveal millions risk falling short of a comfortable retirement. Even after the recent 4.8% triple lock increase, the full new state pension is worth just £12,547 a year at most, and only for those who qualify for the maximum amount. This falls short of the minimum standard of living for a single pensioner, according to Pensions UK's latest Retirement Living Standards survey.
Retirement Costs Soar
The survey shows a minimum retirement lifestyle now costs £13,900 annually for a single person and £22,500 for a couple. A moderate lifestyle costs £32,700 for one and £45,400 for two, while a comfortable lifestyle requires £45,400 and £62,700 respectively. These figures assume no mortgage or rent, but include the state pension.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said the figures should act as a wake-up call. "The key is to make sure that people don't get a nasty shock as they come to retirement and need to make significant cuts to their lifestyle." Pensions UK estimates that more than three-quarters of people are not on track to save enough even for a moderate retirement.
Expert Tips to Boost Savings
Morrissey urged everyone to use online pension calculators and increase contributions with every pay rise. "Making the most of the employer's contributions to a workplace pension could be a game-changer." Rebecca Williams of Rathbones warned that minimum contribution levels are often seen as "enough", but they are unlikely to deliver financial security. She advised starting early and investing wisely.
Scottish Widows research shows over 12 million people face pension poverty. Interactive Investor research suggests many believe £350,000 is enough for a comfortable retirement, but Pensions UK calculations indicate a single person needs at least £335,000, or £560,000 for a comfortable retirement.
Craig Rickman of Interactive Investor noted that constant pension rule changes, such as cuts to salary sacrifice schemes and inheritance tax on unused pensions, may disincentivise savers. The long-delayed Pensions Dashboard, expected next year, may help by allowing savers to view all pots in one place.
Five Ways to Prepare Now
Tim Grimsditch of Unbiased warned that inflation's cumulative impact is often underestimated; a comfortable retirement in 20 years could cost a single person nearly £75,000 a year. He offered these tips:
- Divert pay rises or bonuses into pensions instead of increasing spending.
- Maximise employer matching contributions – it's free money.
- Avoid leaving savings in cash, as inflation erodes value.
- Track down lost pensions and consider consolidating to cut costs.
- Don't delay planning and consider professional financial advice.
Saving for retirement is challenging, especially amid the cost-of-living crisis, but planning ahead is vital to avoid a shortfall.
