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The average pension pot needed to meet basic needs in retirement has increased by 60% to nearly £110,000 amid the cost of living crisis.
The study by the Resolution Foundation, commissioned by the Living Wage Foundation, reveals that the average pension pot necessary to secure a basic retirement income has jumped from £68,300 in 2021-22 to £107,800 in 2023-24. This sharp increase is largely attributed to the ongoing cost-of-living crisis, which has driven up the costs associated with maintaining an adequate income during retirement.
The research found that an average retiree requires an income of £19,300 per year to meet basic living standards. However, this figure varies depending on factors such as relationship status and housing tenure, ranging from £13,500 to £28,400 annually.
Single pensioners who own their homes need £258 per week, or £13,500 annually, to cover basic costs. For pensioner couples who own their homes, this requirement increases to £395 per week, or £20,600 annually. Those without homeownership face even higher financial demands, with single pensioners in the private rental sector needing an additional £6,900 annually – bringing their required income to £20,400 per year.
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After considering various factors like relationship status, housing situation, gender and life expectancy, researchers determined that the average pension pot required – over and above the full state pension –to achieve an annual income of £19,300 is £107,800 for the 2023-24 period.
For workers earning the real living wage, the amount needed to save for this pension pot varies significantly based on work hours, career length, starting age and pay level. Savings rates for 25- to 35-year-olds range from 9% to 15.2%, assuming they work until the state pension age.
Katie, a worker who currently rents from a housing association, said: “I’m dreading retirement. I don’t want to work till I drop but it’s looking increasingly likely as I am unable to save much at the moment and can’t see that changing.
“Not all of us can afford to pay into a pension consistently and afford to live day-to-day. My rent has increased by around £28 a month, or £336 a year, at a time when I’m trying to get back on my feet. I was made homeless from private rented housing just before the pandemic and now live in housing association accommodation.
“Ultimately, I save far less than I’d like and it’s going to take me a great deal longer – we’re talking years – to get myself in a position where I feel stable, safe and could financially deal with anything that life throws at me.”
The release of these findings coincides with polling data from 3,000 people, commissioned by the Living Wage Foundation, which indicates widespread anxiety about retirement savings. More than half (53%) of UK adults contributing to a pension believe they will never be able to retire, and 62% expect to work several years beyond the traditional retirement age.
The research also revealed that low-paid workers, women, and renters are particularly pessimistic about their retirement prospects. Among those earning below the real living wage, 65% felt they would never retire, compared to 54% of those on the living wage and 47% of higher earners. Similarly, 58% of women and 59% of renters expressed doubts about their ability to retire, compared to 47% of men and 48% of homeowners.
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Additionally, the polling revealed that roughly 1 in 10 workers had stopped or reduced their pension contributions within the last six months – a figure that remains steady despite falling inflation. This trend is more obvious among lower-paid workers, women, and renters.
For example, 17% of those earning below the real living wage had cut or halted contributions, compared to 10% of those on the living wage and 6% of those earning above it. Similarly, 10% of women and 12% of renters reduced or stopped their pension savings, compared to 8% of men and 8% of homeowners.
Katherine Chapman, director of Living Wage Foundation, said: “The news that workers now require a significantly larger pension pot to cover basic living costs in retirement will undoubtedly be alarming for many, particularly low paid workers who have borne the brunt of rising prices over the past two years. These workers are already struggling to make ends meet today, and the prospect of saving for the future feels even more daunting.
“No one should have to choose between getting by today and securing their future. This is why we launched a Living Pension accreditation – helping employers ensure their staff can retire with dignity and without fear of poverty. We recently welcomed County Insurance as our 50th accredited Living Pension Employer, and we urge more businesses to join the movement. Together, we can build a future where everyone can look forward to retirement with confidence that they can meet everyday needs.”
The Living Wage Foundation’s Living Pension accreditation is a voluntary savings target aimed at employers who wish to assist their employees in building a pension pot sufficient to meet basic retirement needs. Accredited employers commit to providing a Living Pension savings level, which can be set as a cash target (£2,800) or a percentage of income (12%), with a minimum employer contribution of 7% or £1,630.
Since its launch in March 2023, the Living Pension initiative has gained momentum, expanding from an initial six accredited employers to 50, with County Insurance being the latest to join. Employers like Aviva, SSE and Newcastle Building Society are among those participating in the scheme.
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