The average pension pot required to secure a “basic” standard of living in retirement has surged by nearly 60 percent in just three years.
This is according to new research, reflecting the impact of the UK’s ongoing cost of living crisis.
The rising prices of housing, energy, food, and transport have significantly increased the financial burden on those planning for retirement. This leaves many workers worried they may never be able to stop working.
The study has been conducted by the Resolution Foundation think tank and the Living Wage Foundation. It revealed the average pension pot needed to achieve a basic standard of living in older age has jumped from £68,300 in 2020-21 to £107,800 in 2023-24.
Cost of Living and Retirement
The Rising Cost of a Basic Retirement
Researchers found to achieve a basic standard of living, the average retiree would need an annual income of £19,300. This amount covers essential expenses, including housing, energy, and food.
However, the required income varies widely depending on factors such as whether someone owns or rents their home, and whether they are single or part of a couple.
When averaged across various types of households, the study calculated that a pension pot of £107,800 would be required to meet the £19,300 annual income target. This is in addition to receiving the state pension.
The full state pension in the UK is currently set at £221.20 per week, which totals £11,502 per year.
Pension Requirements and Living Standards
The Resolution Foundation’s findings align with other research highlighting how inflation and rising costs have escalated the financial requirements for retirement.
The Pensions and Lifetime Savings Association (PLSA) has developed the "retirement living standards" index. This data outlines different levels of retirement based on income: minimum, moderate, and comfortable.
According to the PLSA, the minimum income threshold for a single person in retirement has risen to £14,400 a year.
To achieve a moderate standard of living, retirees now need an annual income of £31,300. A comfortable life would require £43,100 a year.
The financial pressures caused by rising living costs have left many workers concerned about their ability to retire.
A recent poll of 3,000 UK adults, conducted by the Living Wage Foundation, found 53 percent of those saving into a pension felt they would never be able to retire.
62 percent of respondents also believed they would need to work several years beyond the official retirement age.
The survey also revealed certain groups, including low-paid workers, women, and renters, had the most negative outlook on their future retirement prospects.
These groups have been disproportionately affected by the rising cost of living. They expressed concerns about being able to save enough for a secure retirement.
Rising Inequality in Retirement Savings
Katherine Chapman, director of the Living Wage Foundation, emphasized the challenges facing low-income workers as they try to save for life after work.
She said:
“The news that workers now require a significantly larger pension pot to cover basic living costs in retirement will undoubtedly be alarming for many, particularly low-paid workers who have borne the brunt of rising prices over the past two years,”.
She called for more support to ensure that workers, particularly those on lower incomes, can save adequately for their retirement.
“It’s vital that we address these inequalities and provide better opportunities for all workers to build a secure future,” she added.
Looking Ahead: The Need for Policy Action
As the cost of living crisis continues to strain workers' retirement plans, there is growing pressure for policymakers to address the challenges faced by savers.
Experts suggest that without action, more people may find themselves working well beyond the retirement age, or facing financial hardship in their later years.
The findings from the Resolution Foundation and Living Wage Foundation highlight the urgent need to address the widening gap between the rising cost of living and the ability of workers to save for a basic retirement.
