- The cost of a ‘minimum’ retirement for a one-person household has dropped by £1,000 to £13,400 per year in the PLSA’s latest ‘Retirement Living Standards’, reflecting lower energy prices and shifting spending expectations
- Meanwhile, the annual cost of a ‘moderate’ or ‘comfortable’ standard of living for a one-person household has risen marginally to £31,700 (moderate) and £43,900 (comfortable)
- Two-person households are more able to reach the living standards as costs are shared – although the numbers assume you have no rent or mortgage to pay
- A comfortable retirement for a one-person household could require a pension pot worth up to £800,000, alongside the state pension
- The actual amount you need to fund your retirement will depend on a number of factors including when you stop working, your health, overall wealth and your investment returns (if you choose to keep your pot invested through drawdown)
- Anyone hoping to achieve a ‘moderate’ or ‘comfortable’ retirement will almost certainly need to take responsibility and increase their pension contributions
Tom Selby, director of public policy at AJ Bell, comments:
“The good news for retirees is that the pain of rocketing inflation is now easing, which in turn is reflected in the drop in the cost of a ‘minimum’ retirement living standard, according to new figures released by the Pensions and Lifetime Savings Association (PLSA). While the ‘moderate’ and ‘comfortable’ living standards have seen marginal increases, these are significantly below the eye-watering rises we saw off the back of the cost-of-living crisis in the early 2020s.
“This is clearly a positive development although the nature of inflation means living costs for everyone, including retirees, will almost certainly be permanently higher in the future. And there is no getting away from the fact that the pension pot sizes needed to achieve the moderate or comfortable living standards, particularly for a one-person household, are staggeringly high.
“Being told you need to build a pension pot worth £500,000 plus to enjoy a decent standard of living in retirement might feel intimidating. The key is to focus on saving as much as you can afford from as early as possible, taking advantage of incentives like employer contributions, tax relief and tax-free investment growth.
“Automatic enrolment has been successful in boosting pensions participation in the UK, but the harsh reality is that anyone on minimum contributions – currently set at 8% of earnings between £6,240 and £50,270 – is at risk of falling well short of their retirement expectations. The big danger here is that, without a scaling up of minimum contributions, millions of people will sleepwalk into a retirement shock and be forced to choose between working longer or living on less money in their later years.”
What do the PLSA Retirement Living Standards look like for 2024/25?
The Retirement Living Standards are designed to provide a very rough guide to how much a ‘minimum’, ‘moderate’ and ‘comfortable’ retirement lifestyle might cost. They attempt to give a realistic estimate by assuming that everyone, including those targeting a ‘minimum’ standard of living, will want to enjoy a social life and the odd takeaway as well as paying essential bills.
For example, the minimum living standard assumes one weeklong UK holiday per year. By contrast, the moderate living standard assumes a fortnight three-star all-inclusive holiday in the Mediterranean and a long weekend break in the UK. The comfortable living standard, meanwhile, budgets for a fortnight four-star holiday in the Mediterranean with spending money and three long weekend breaks in the UK.
You can see some of the key spending assumptions that inform the Retirement Living Standards in the table below. It’s important to note that all the living standards assume no rental or mortgage costs.
One-person household:
Two-person household:
Source: PLSA
How have the Retirement Living Standards changed since last year?
Source: PLSA
