The income required to maintain a minimum standard of living in retirement has fallen, according to new figures from the Pensions and Lifetime Savings Association (PLSA).
A single-person household now needs just £13,400 per year to meet this basic threshold – the lowest of the three retirement living standards – representing a £1,000 drop from last year. For a two-person household, the figure has fallen by £800 to £21,600.
In contrast, the moderate and comfortable retirement standards have seen increases.
Developed by the Centre for Research in Social Policy at Loughborough University on behalf of the PLSA, the retirement living standards outline the annual income needed for three levels of retirement: minimum, moderate, and comfortable.
The findings are based on extensive discussions with members of the public from across the UK.
So, why has the minimum standard dropped – and what could it mean for your own retirement planning? Here, The i Paper breaks it down.
For many, retirement is about maintaining the lifestyle they are used to, not living more extravagantly or scaling back to the bare essentials, Zoe Alexander, director of public policy and advocacy at the PLSA, said.
The retirement living standards are intended to help people visualise their future and plan in a way that suits their individual needs.
Below are the updated income levels required to meet each of the three retirement tiers for both one-person and two-person households. Although, the numbers assume you have no rent or mortgage to pay.
A minimum standard of living in retirement covers all your needs, with some left over for fun, such as £50 per week on groceries, a week-long UK holiday, and up to £630 for clothing each year. But no car.
A moderate standard of living gives you a little more security and flexibility, with £55 per week to spend on groceries, a three-year-old small car, a two-week all-inclusive holiday in the Med at a three-star hotel and a long weekend break in the UK.
And a comfortable standard of living gives you £70 per week on food, £20 per week on takeaways, a two-week-long four-star holiday in the Med with spending money and three long weekend breaks in the UK. As well as up to £1,500 for clothing and footwear each year.
Why has it fallen?
According to the PLSA, the drop in the minimum retirement living standard is mainly due to a significant fall in energy costs (since 2023, when the figures were last calculated), along with a few modest spending adjustments identified by research participants.
This year, discussion groups agreed that certain expenses – such as clothing, hairdressing, tech purchases, taxi use, and charitable giving – could be reduced to reflect a more realistic minimum standard of living.
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However, participants also agreed that the budget for rail travel should increase, citing both higher fares and a growing need to travel longer distances by train. As a result, the annual rail fare allowance has risen from £100 to £180 per person.
Meanwhile, the moderate and comfortable retirement standards have edged up slightly, broadly in line with April’s inflation rate of 3.5 per cent, the PLSA said.
Tom Selby, director of public policy at AJ Bell, noted that while it is “good news” for retirees that the pressure of soaring inflation is easing, the pension savings required to meet the moderate or comfortable standards, especially for individuals living alone, remain dauntingly high.
How can you best prepare yourself?
Currently, in the UK, automatic enrolment sets pension contributions at 8 per cent, which Ms Alexander said is a “solid starting point”, especially if you begin early.
But for many, saving 12 per cent or more offers a better chance of reaching the retirement they expect, she said.
She explained: “While defaults may rise in the future, it’s important for savers to consider whether 8 per cent will be enough for their goals.
“Everyone’s situation is different, and contributions should be manageable. But if your circumstances improve, even small increases can make a big difference to your future.”
Mr Selby said starting as early as possible and taking advantage of incentives like employer contributions, tax relief and tax-free investment growth are great ways to boost your pot.
Without a scaling up of minimum automatic enrolment contributions, he said: “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.”
Professor Matt Padley, co-director of the Centre for Research in Social Policy at Loughborough University, said: “The consequences of the cost-of-living challenges over the past few years are still being felt, and we’ve seen some subtle changes in public consensus about minimum living standards in retirement, resulting in a small fall in the expenditure needed to reach this standard.
“In these uncertain times, planning in concrete ways for the future is ever more important, and the retirement living standards help people to think in more concrete ways about what they want their retirement to look like, and how much they will need to live at this level.”
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