Most UK retirees are living on nearly £10,000 less than what is considered an “adequate” retirement income, research has revealed.
A study, by wealth manager Quilter, in collaboration with the Centre for Economics and Business Research (CEBR), shows the typical pensioner spends £22,140 a year.
This falls far short of the £31,700 annual benchmark set by Pensions UK for a moderate lifestyle for a single person.
At the same time, many older people are quietly keeping younger generations afloat, gifting thousands each year to children and grandchildren despite their own tight budgets.
Quilter’s chief executive Steven Levin said the findings reveal that these “aren’t luxury years, they’re active financial years, and planning needs to reflect that”.
Here, we take a look at what an “adequate” retirement really means, where the money goes, and why so many pensioners feel they are falling behind.
Pensions UK – formerly the Pensions and Lifetime Savings Association (PLSA) – estimates a single person needs around £31,700 per year to achieve a moderate lifestyle, covering essentials plus some discretionary spending such as holidays and dining out.
Quilter’s study, based on a survey of 5,001 retirees, found spending levels fall well short of this figure for most households.
Where pensioners’ money is going
The Retirement Spending Index shows that housing at £2,258, groceries at £2,222 and holidays at £2,137 make up the biggest bills annually. But discretionary spending remains significant.
Retirees spend an average of £1,985 on home improvements, £1,579 on debt repayments, and £1,374 on healthcare, despite NHS provision, each year.
Perhaps surprisingly, gifting to others absorbs more than 10 per cent of annual budgets, with £1,323 going to relatives and a further £1,175 towards education for grandchildren.
Jon Greer, Quilter’s head of retirement policy, said: “Retirement spending changes over time, but it doesn’t always fall across the board.
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“Our index shows the average retiree still parts with about £22,000 a year, with holidays, home improvements and groceries absorbing most of the budget.
“However, over £2,500 is earmarked for gifts and educational help for younger generations.
“Clearly, reliance on the ‘Bank of Mum and Dad’, or for some the ‘Bank of Gran and Grandad’, is prevalent.”
Why people are falling short
The report highlights deep reliance on the state pension, which makes up 47 per cent of income for 70 to 74-year-olds and 50 per cent for those over 80.
For those in the “mid-age stretched” category, which Quilter has said is retirees aged 65 to 79 with an income of £35,000 or less, the state pension provides 52 per cent of their income. The rest comes from other pensions or investments, according to the report.
While it found the median retiree household income to be £35,000, regional gaps are stark.
In Wales, 42 per cent of retirees report less than £30,000 – the highest proportion across the UK, compared with an average of £58,113 in London.
Among younger retirees, it may be that they underestimated the size of the pot required to maintain their pre-retirement standard of living, hence the growing consideration of returning to work, Mr Levin said.
He added: “There are also broader implications for younger generations, especially those reliant on the ‘Bank of Mum and Dad’, or the ‘Bank of Gran and Grandad’, to help them onto the housing ladder or even children looking to their parents to provide seed capital for their fledgling ventures.
“It is clear that not only are the retired community an important funder of relatives’ financial aspirations, but that this support may shrink as retirees contend with rising living costs, impending changes to pensions being drawn into estates from 2027 and the limitations of current gifting allowances.”
Despite current spending levels, 51 per cent of retirees fear they cannot maintain their standard of living over the next year, with 18 per cent saying they are very concerned.
Mr Levin said it is “alarming” to see so many retirees deeply concerned about their financial future.
Quilter has warned that as defined benefit (DB) pensions decline, future retirees may be less able to support younger generations, with potential knock-on effects for the wider economy.
The Government has been contacted for comment.
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