Pension income needed to retire jumps as family costs rise

A single person will need £31,300 a year for a moderate income in retirement, according to a pensions industry body.
The rising cost of living and an expectation to offer financial support to grandchildren had pushed up the income required by £8,000, it said.

The Pensions and Lifetime Savings Association (PLSA) uses evidence from focus groups to make the estimates.
It is intended as a guide for those planning their retirement savings.

The rise is primarily the result of rising food and energy costs, researchers said.

The calculations are pitched at three different levels - minimum, moderate and comfortable - and are developed and maintained independently by the Centre for Research in Social Policy at Loughborough University.

They estimated that a single person needed:

• £14,400 a year for a minimum income
• £43,100 a year for a comfortable retirement

Couples required a joint income:

• £22,400 at the minimum level,
• £43,100 at a moderate level 
• £59,000 at a comfortable level.

How much do you need to save?

The amount someone needs to save during their working life to reach these levels of retirement income is a complicated and highly speculative calculation. That is because of changes over such a long time, the variety of pensions options, and lots of variables.

In very simple terms:

• Someone with a defined benefit pension will be paid an income at retirement. Each year, as they save, they receive an update on how much pension they are forecast to receive.
• If a single person buys an annuity (a retirement income) when they stop work, they would need to have saved £40,000 to £70,000 to reach the minimum standard, according to the PLSA, or £300,000 to £500,000 for a moderate standard, or £490,000 to £790,000 for a comfortable standard.
• Many people now drawdown a pension from their invested pot. Under this option, a single person needs savings of £70,000 for the minimum standard, £490,000 for a moderate standard, and £790,000 for a comfortable level, according to investment platform AJ Bell

If you wish to discuss your pension, please contact one of our independent financial advisers.

Please note: All the above incorporates people also receiving the full state pension.

The calculations are based on current prices and make a host of other assumptions. For example, annuity rates change, so experts stress this can only be an illustration.

Although every effort has been made to ensure that the information provided in this article is accurate and correct, the information provided does not constitute any form of financial advice. We recommend that you take financial advice before making any financial decisions.