BBC Money Box on overpaying mortgage or pensions
Pensioners have been dealt a brutal blow to their finances as the cost of having a “comfortable retirement” has risen substantially, according to experts.
Calculations from interactive investor found that retirees would need around £69,000 more in their pensions during their retirement to live to a good standard.
Based on an analysis of 2022’s PLSA retirement living standards, the cost of a “comfortable retirement” for pensioners has increased by £4,200 since last year.
Older Britons required a total income of £47,700 in July 2023 for a “comfortable” post-work life compared to £43,500 in April 2022.
For context, that is the equivalent of £37,100 private pension income, assuming they get a full state pension of £10,600.
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In order to get this extra £4,200 a year, pensioners will need a private pension pot worth £290,800 which is £42,800 more than what was needed the year before.
Comparatively, the cost of a “moderate retirement” has now risen by £2,600 a year which will require a private pension pot of around £290,800, an additional £42,800 compared with April 2022.
Furthermore, a “no frill retirement” now costs £1,400 more a year and will only pay for the essentials needed for living.
These hikes in the cost of retirement living are a result of the impact on the impact of rising inflation.
Alice Guy, the head of Pensions and Savings at interactive investor, the dilemma pensioners are in.
She explained: “High inflation over the last 18 months has had a devasting impact on the spending power of people’s pension income, meaning that they need a lot more pension income just to maintain the same spending power.
“It now costs around £4,000 more for a comfortable retirement than in April 2022, due to persistently high inflation. And pensioners will need at least an extra £69,000 in their workplace or private pension pot to achieve that level of pension income.
“For a moderate retirement, pension savers will need a private pension income of around £2,600 more than last year and £42,800 more in their workplace or private pension pot.”
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The retirement expert warned of the dangers posed by withdrawing from pension pots early in order to make live easier during the cost of living crisis.
Ms Guy added: “Those with a minimum pension income will need a scary 61 percent more private pension income compared to last year just to keep up the same living standard and more than £23,000 more in their pension pot.
“These kinds of eye-watering sums are simply unaffordable for pensioners, many of whom have a small private pension pot and little option to make more pension contributions.
“The danger is that withdrawing more from your pension pot could have a long-term impact on your pension wealth – withdrawing too much could mean some pensioners run out of money earlier than planned.”
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