New research has revealed the true cost of retirement and suggested that only 38 per cent of savers are on track for a modest income.
Once people know how much they need, it helps them plan ahead and meet their retirement goals.
New data from Hargreaves Lansdowne (HL) found that pension costs rose by a whopping 34.3 per cent a year for singles and 26.8 per cent for couples.
The Pensions and Lifetime Savings Association (PLSA) provides its own retirement comfort data, but HL used headline inflation data to boost PLSA’s previously used 2023 retirement income standards by 7.3 percent. This is a direct reflection of the increase in the cost of goods and services during this period.
The HL data is an alternative approach to the newer PLSA retirement income standard, which includes more aspirational aspects of retirement lifestyle, such as extra days spent with family.
More aspirational areas, such as a desire to spend more time with family after the pandemic, were added to their calculations, resulting in their pension costs rising to £31,300 a year for an individual and £43,000 for a couple.
As the cost of living crisis continues, Britons are being urged to plan their retirement in advance to allow enough time to save.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “If you’re wondering how much you need to live on in retirement, the latest HL Savings and Resilience Barometer figures suggest you’ll need around £25,000 a year if you’re single, and £ 36,480 together if you are a couple.”
She explained that working out how to manage an inflationary shock presents an opportunity for PLSA and the industry to engage in how best to help people measure their retirement income needs.
The pensions expert continued: “Even accepting a smaller increase reveals the huge challenges people face in planning for retirement. Only 38 per cent of households are on track for a moderate income in retirement – it’s clear there is still a lot of work to be done to pension improvement.” adequacy.”
The Full New State Pension is currently £11,500 per person and can contribute a significant amount to the required annual income.
However, millions do not have a good enough private pension or savings to make up the gap between the state pension and what they need.
About 12.2 million households do not have the retirement savings needed to retire with a moderate standard of living. However, within this group, nearly seven million are not behind on debt repayments or installments and have excess cash or investments that could be used to boost their pensions or private pensions (SIPPs).
“This is a simple shift that could see 1.8 million households cross the moderate pension threshold and secure their financial futures, while the outlook for the remaining households would improve significantly.”
Additional gaps that could lead to households exceeding the moderate retirement income threshold could be filled by appropriate government reforms, such as the Automatic Enrollment Extension Act.
Once a worker turns 18, they will be able to save money for their pension, which will increase their pension pots over time.
Another option, Morrissey explained, could be exploring how to incentivize employers to contribute more to employee pensions.
For example, employers could increase contributions to employees who voluntarily put in more.
Morrissey added: “The self-employed also need to be taken into account. They are a group that is being ignored by auto-enrolment and are less likely to use pensions because of their perceived inflexibility.”
“A Lifetime ISA could really help this group with a 25 per cent Government bonus on contributions of up to £4,000 a year, which would act as a real incentive with any tax-free income.
“However, the 25% penalty penalty for early access not only takes away the effect of this bonus but also a chunk of hard-earned savings and we have called on the Government to reduce this to 20 per cent to eliminate this problem and ensure that people are not penalized for trying to do the right thing.
“We also want to increase the upper age limit from 40 to 55 to help those who become self-employed later in life!”