Industry experts have raised further pension adequacy concerns, after research from the Institute for Fiscal Studies (IFS) revealed that the average spend of recent retirees with higher-than-average incomes increased through their 60s and 70s.

The analysis found that, among those born between 1939 and 1943, households with above-average incomes increased their annual spending per person between the ages of 67 and 75 by 7 per cent, or £1,200, after accounting for inflation.

These spending increases were driven in large part by increasing spending on holidays, with annual average spending per person on holidays rising by £430 between the same ages.

Whilst spending rose for higher income people, however, those with lower incomes saw their spending remain broadly flat as they moved through retirement.

Despite the increased spending, the research showed that incomes were also increasing strongly with age, with those born in 1939–43 seeing their average annual household income increase 24 per cent, after adjusting for inflation, from £13,000 at age 67 to £16,000 at age 75.

The increases in income were driven by state pension incomes increasing faster than prices and by increasing numbers of people receiving the state pension, disability benefits and survivors’ benefits as they age.

The research also highlighted “important changes” in the composition of spending as people aged, revealing that whilst annual spending on holidays increased, spending on food enjoyed at home and on motoring fell steadily with age.

Spending on household services, including spending on domestic cleaning and home help, and household bills also increased from the mid-70s onwards, whilst spending on bills grew by £350 per person per year between ages 75 and 85, reflecting the fact that shared expenditures like these tend not fall when a partner dies.

The findings have prompted concerns that retirees are underestimating their spending in retirement, with particular concerns raised that those choosing income drawdown could run out of money in retirement.

IFS research economist and an author of the report, Heidi Karjalainen, commented: “As retirement incomes are increasingly funded by defined contributions pots, which can be accessed flexibly, more and more retirees face complex and consequential decisions about how quickly to draw down their pension wealth.

“If the spending patterns of current retirees are a good guide to how people in the future will want to spend, planning drawdowns on the basis of reduced spending needs in later retirement may not be wise as it may result in unexpected shortfalls in living standards at older ages.

“While average pension incomes have grown strongly with age in recent years, leaving many retirees with more resources than they chose to spend, high inflation is reducing retirees’ spending power and – along with the more uncertain outlook – makes careful financial planning all the more important.”

Adding to this, Interactive Investor head of pensions and savings, Becky O'Connor, warned that "unpredictable requirements to spend can come in later in life and blow the budget".

“If people end up spending more than they expected as they age, there is a chance they could exhaust their pension pots too soon," she continued.

“These findings suggest that people should err on the side of caution and plan as though they will always need the same amount of income each year, rather than that spending will go down dramatically, taking into account rises in the state pension they will receive over time."

In light of this, O'Connor highlighted rises in the state pension from the triple lock are there as "an essential backstop", suggesting that the report may also support the case for a comeback for annuities, which pay a guaranteed income for life.

These concerns were also shared by Canada Life technical director, Andrew Tully, who added: "With the cost of living crisis at the front of everyone’s mind, those on fixed incomes such as pensioners will have fewer levers to pull to get through the challenges we face.

"Many of those who need to are already tightening their belts, reducing their energy consumption, going out and eating out less often or changing shopping habits, and this will only get worse as inflation grows through the year.”

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