Just How Much Does Retirement Cost?

In April the New State Pension will rise to £203.85 a week, a 10.1% increase on the current level, thanks to the infamous ‘triple lock’. At the same time, the National Living Wage will rise to £10.42 an hour, equivalent to £364.70 a week. As both could be regarded as Government determined minimum incomes, the gap between the two begs questions about why retirement appears to be so much less expensive.

How much retirement income is needed to maintain your standard of living?

Since 2019, every year, the Pensions and Lifetime Savings Association (PLSA) has published estimates of the net income needed to answer that question. In conjunction with Loughborough University, the PLSA produces a table of target retirement incomes for three distinct living standards:

• Minimum, a level of income which covered all needs, with ‘some left over for fun’;

• Moderate, a higher level of income, providing more financial security and flexibility; and

• Comfortable, the top level of income, giving more financial freedom and ‘some luxuries’.

There are six common categories underlying each standard – house, food, transport, holidays & leisure, clothing & personal and helping others. For example, under the holidays & leisure heading, the minimum standard for a couple is one week and a long weekend in the UK each year, while the comfortable standard envisages three weeks in Europe every year. The standards are reviewed annually as living patterns change. For instance, in the latest update, published in January 2023, supermarket delivery charges have been included for the first time.

The latest results

The latest tables are based on prices in April 2022, so are already behind the inflationary curve (the CPI rose by 5.3% from April 2022 to January 2023). Even so, they show a marked increase over April 2021.

At the minimum levels, the year-on-year increase for a couple living outside London is almost 20%. Part of that is due to their proportionately heavier expenditure on energy and food, both sectors that have seen above average inflation.

However, even the least affected, the comfortable couple, saw their costs rise faster than the 9% CPI inflation over the year to April.

The PLSA’s net annual income targets for 2022 and 2021 for those living outside London are shown in the graph below. Full London costs are still awaited, but the PLSA has already said for a moderate living standard couple the 2022 figure is £41,400 (up 14.4%).