A single person hoping to achieve a comfortable lifestyle in retirement would need a pension pot of £645,000, following the inflationary update to the Pensions and Lifetime Savings Association (PLSA) Retirement Living Standards (RLS), analysis from Quilter has found.

The PLSA's update revealed that the annual increase in what is needed to reach each living standard over the past year was "by far the largest" since the standards were established in 2019, with rising prices pushing up the minimum RLS cost by nearly 20 per cent.

Based on this increase, Quilter found that a comfortable retirement would require a single person to have an annual income (net of tax) of £26,700 per year on top of the state pension, which in 2023-24 is £10,600 per year.

Someone looking to achieve a moderate retirement lifestyle, meanwhile, would need to build up a pension pot of approximately £301,000, while those looking to achieve a minimum lifestyle would need to have build up a pot of around £44,000, alongside their state pension.

Commenting on the findings, Quilter head of retirement policy, Jon Greer, stated: "While these figures are only a guide it is worth noting that you need to build up a relatively significant pension pot just to achieve a moderate lifestyle.

"Starting young is key as pension pots have a compounding effect that helps money grow much more the longer it is in the pot."

However, Greer pointed out that the figures from the PLSA all assume that retirees are living rent or mortgage free in their homes, warning that while these numbers make sense now, they may rise "considerably" for future generations.

"This is due to soaring house prices meaning that many struggle to find the money to buy a house or are forced to takeout marathon mortgages with terms that stretch into their 70s to achieve lower monthly mortgage payments," he explained.

“Similarly, The PLSA’s figures also do not account for the potential costs of requiring social care."

These concerns were echoed by PensionBee director of public affairs, Becky O’Connor, who warned that the RLS “set a benchmark for living standards in retirement now, not for what today’s younger workers will need in the future, after decades more inflation, which remains difficult to gauge”.

“There are also a number of significant potential costs that these living standards don’t take into account, but if they arise, could have an impact on living standards,” she continued.

“For example, the growing number of older people living in privately rented accommodation is a looming threat to retirement for those who will still be paying housing costs when they stop work. Many older people also wish to gift money to adult children or
grandchildren. There is also the possible cost of care to factor in."

However, O'Connor acknowledged that many savers will "take heart" from the figures, highlighting the update as "a useful indicator of what to aim for".

Industry experts more broadly have also highlighted the increase in the RLS as “vital guidance” for those planning their retirement in challenging circumstances, with Standard Life managing director of individual retirement, Claire Altman, noting that savers will have to navigate the impact of high inflation, as well as the cost-of-living crisis.

She continued: “The current economic environment has not made it easier for people to manage their retirement savings and while flexibility is important when it comes to retirement income, there is also a demand for certainty.

“Some of this certainty may well best be met by annuity income, and with rising rates, this actually benefits retirees."

Legal & General Investment Management head of defined contribution (DC), Stuart Murphy, also highlighted the update as “stark reading” emphasising the need for the pensions industry to support savers.

“In uncertain times, the focus for the pensions industry needs to be on supporting all members to make informed financial decisions, navigating today’s economic challenges while boosting savers’ long-term retirement prospects, where possible,” he stated.

“These figures also highlight the urgent need for pensions reform – particularly around expanding auto-enrolment criteria – to ensure that no-one is left behind.”

In particular, Scottish Widows head of policy, pensions & investments, Pete Glancy, suggested that replacing the rules around employer contributions slightly could help savers at this “difficult time”.

He explained: “The situation would be improved by allowing lower paid employees to temporarily alter their employee pension contributions when their financial situation changes – without losing their right to an employer-paid pension contributions.

"Employer pension contributions are effectively deferred pay, and anyone struggling to make ends meet shouldn’t be penalised further down the line for needing to keep hold of more of their money now.”

LCP head of DC, also emphasised the need to consider reform, adding: “At a time when we are hearing about more people wanting to halt or reduce their pension contributions it’s a reminder that there needs to be a serious evaluation of auto enrolment levels and a national consensus on retirement adequacy to ensure that people have adequate savings for the future.”

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