State pensioner says it’s ‘ridiculous’ to call pension benefit
The annual income needed for retirees to enjoy a decent standard of living has been put at £25,000 for a single person and £36,480 for a couple. The figures, which are the amount left over after tax is paid, are much higher than millions can expect to receive based on the State Pension plus any private pension they may have.
As a result, investment experts, say they serve as a warning that many people will have to rethink their savings and pension strategies to avoid poverty in old age.
The State Pension – currently paying £11,500 per person – will contribute a significant amount towards the annual income needed. However, millions do not have a sufficiently good private pension or savings to make up the gap between the state pension and what they need.
The figures come from investment experts at Hargreaves Lansdown who calculate that just 38 percent of people are currently on track to guarantee a moderate retirement income. Its data shows that 12.2 million households do not have the pension savings required to retire with a moderate living standard.
However, within this group, almost 7 million are not behind with debt repayments or bills and have the excess cash or investments that could be used to boost their retirement income by increasing savings into workplace pensions or SIPP (Self Invested Personal Pensions).
The retirement income figures produced by Hargreaves Lansdown are lower than estimates produced by the Pension and Lifetime Savings Association’s (PLSA)―an organisation who represent pension schemes that provide retirement incomes to more than 30 million savers in the UK.
It put the annual income needed by a single pensioner for a moderate lifestyle at £31,300 and the figure for a couple at £43,000.
Just 38 percent of people are currently on track to guarantee a moderate retirement income (Image: Getty)
A moderate lifestyle, according to PLSA, includes:
* Having enough money to spend £55 a week on groceries, £30 a week on food out of the home, £10 a week on takeaways, and £100 a month to take others out for a monthly meal.
* Owning a three-year old small car, which is replaced every 7 years, spending £20 a month on taxis, and £100 per year on rail fares.
* A fortnight 3* all-inclusive holiday in the Med and a long weekend break in the UK.
* Basic TV and broadband plus two streaming services.
* Up to £1,500 for clothing and footwear each year.
* £30 for each birthday and Xmas present
* £200 a year charity donation
* £1,000 for supporting family members e.g. paying for grandchildren activities.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “If you are wondering how much you need to live on in retirement then the latest HL Savings and Resilience Barometer data suggests you will need around £25,000 per year if you are single and £36,480 combined if you are in a couple.
“Developing pounds and pence estimates for what you need in retirement is a hugely useful tool in helping people work out what they need and how close they are to achieving it. It’s a conversation started by the development of the Pensions and Lifetime Savings Association Retirement Income Standards.
“For the purposes of this edition of the Barometer we’ve increased the figures the PLSA used for a moderate retirement in 2023 by headline inflation – 7.3 percent.
“This is a direct reflection of increases in costs to goods and services during that period. This offers an alternative to the current PLSA approach where more aspirational areas such as the desire to spend more time with family post-pandemic were added in. This led to their retirement costs soaring to £31,300 per year for a single person and £43,000 for a couple.
“These things will be important to many, but not all people, and many live well in retirement on far less.
“This diversity in approaches needs to be considered. Working out how to handle the inflation shock presents an opportunity for the PLSA and industry to engage on what is the best way to help people measure their retirement income needs.”
12.2 million households do not have the pension savings required to retire to a moderate standard (Image: Getty)
She added: “Even adopting a smaller increase exposes the huge challenges people face in planning for retirement.
“With only 38 percent of households on track for a moderate income in retirement – there is clearly much work still to be done to improve pension adequacy.”
She said some 1.8 million people could guarantee a comfortable old age by using spare cash to invest more in their pensions. She said others could be helped if the government changes the law to ensure young adults of 18 are immediately enrolled into workplace pensions as soon as they get a job.
“Further reform could explore how to motivate employers to contribute more to employee pensions. For instance, employers could increase contributions for employees who voluntarily put more in themselves,” she said.
“The self-employed also need to be considered. They are a group ignored by auto-enrolment and less likely to use pensions due to their perceived inflexibility. A Lifetime ISA could really help this group with the 25% government bonus on contributions of up to £4,000 per year acting as a real incentive with any income taken tax free.”