UK households earning less than £45,000 a year, including Department for Work and Pensions (DWP) state pension benefits, have been issued a stark warning. A recent release from Pensions UK has highlighted that the cash value needed to be comfortable in retirement has skyrocketed.
Sharp increase in required income
The threshold has jumped from £33,600 to £45,400 earned annually. This change is expected to place 90% of workers in a danger zone where they will no longer be able to live comfortably in retirement, experts have warned. Currently, only 9% of the workforce has enough savings to enjoy a comfortable retirement.
A comfortable retirement is defined as having sufficient money to eat out weekly, enjoy a two-week holiday in the Mediterranean each year, and replace a car every five years. The research also revealed that nearly one in five people (18%) are failing to save enough even to meet the minimum retirement lifestyle.
Minimum and comfortable retirement costs
The basic retirement lifestyle requires £13,900 a year for a single-person household, or £22,500 for a couple, according to the study. Those hoping to retire comfortably will now need an annual income of £45,400, an increase of £11,800. To achieve this, an average pensioner would need to take around £55,000 from their retirement savings and state pension each year before tax.
Prof Matt Padley, from the Centre for Research in Social Policy at Loughborough University, which conducted the research, commented: “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. 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.”
Expert reaction
Lily Megson-Harvey, Policy Director at My Pension Expert, said the figures are a stark reminder that too many people are heading towards retirement without enough saved to maintain the lifestyle they may be expecting. “A cliff-edge drop in income can be a real shock when people stop work, particularly as rising living costs continue to push up the cost of retirement. For many savers, the challenge is not just whether they have a pension, but whether it will go far enough. That is why engagement with pensions needs to happen much earlier. Reviewing contributions, checking whether you are on track, and making use of tools such as annual statements and retirement income forecasts can all help people understand where they stand.”
