A comfortable retirement costs £4,200 more a year than in 2022

Interactive investor calculations, reveal the increased cost of retiring in 2023, compared to 2022. The calculations are based on the widely used 2022 Pensions and Lifetime Savings Association (PLSA) Retirement Living Standards, updated for the latest inflation figures in July 2023.

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Our calculations show that pensioners now need a total income of £47,700 in July 2023 for a comfortable retirement compared to £43,500 in April 2022 (PLSA figure). That equates to £37,100 private pension income, assuming they get a full state pension of £10,600, compared to £32,900 private pension income in April 2022, an increase of £4,200 each year.

To generate £4,200 additional pension income, pensioners would need a private pension pot of around £598,700, an additional £68,700 compared with April 2022.

For a moderate retirement, pensioners now need £28,600 total pension income compared to £26,000 in April 2022. That equates to £18,000 private pension income, assuming they get a full state pension of £10,600, compared to £15,400 private pension income in April 2022, an increase of £2,600 each year.

To generate £2,600 additional pension income, they would need a private pension pot of around £290,800, an additional £42,800 compared with April 2022.

Those with a no-frills minimum retirement income now need an additional £1,400 each year. For a minimum retirement, pensioners will now need £14,300 total pension income compared to £12,900 in April 2022. That equates to £3,700 private pension income, assuming they get a full state pension of £10,600, compared to £2,300 private pension income in April 2022.

To generate £1,400 additional pension income, those with a minimum retirement income would need a private pension pot of around £59,900, an additional £23,400 compared with April 2022.

These figures are based on the income needed for single pensioners.

How we worked out the cost of retirement

The calculations are based on the 2022 PLSA Retirement Living Standards (which were based on inflation up to April 2022). We updated the retirement living standards to take account of inflation up to July 2023. The private pension pot needed to generate enough pension income was based on the same assumptions used in the PLSA Retirement Living Standards (£6,200 pension income for each £100,000 of pension wealth). In reality, most pensioners choose income drawdown in retirement rather than buying an annuity so the actual pension pot needed could be slightly different.

Assumptions and sources: PLSA Retirement Living Standards  (See how much income you could need for each standard), ONS CPI inflation data from April 2022 and July 2023, based on an annuity of £6,200 per £100,000 pension pot, rounded to the nearest £100.

Assumptions and sources: PLSA Retirement Living Standards  (See how much income you could need for each standard), ONS CPI inflation data from April 2022 and July 2023, based on an annuity of £6,200 per £100,000 pension pot,  rounded to the nearest £100.

Alice Guy, Head of Pensions and Savings, interactive investor says: “High inflation over the last 18 months has had a devastating 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.

“Those with a minimum pension income will need an scary 61% 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.

“A minority of pensioners have an inflation-proof final salary pension, but even final salary pensions often have increases capped at 3% or 5%, so pensioners will have to make their money stretch further in times of high inflation.

“While past performance is not an indicator of future results, pension savers can be encouraged that share prices have a rich history of outperforming inflation. There are also signs that high inflation is beginning to ease. The Bank of England expects inflation to fall to around 3% by the middle of 2024.

“If you are struggling to make your pension income stretch, it’s important to check if you could be entitled to benefits such as Pension Credit. It’s estimated that around 800,000 pensioners currently aren’t claiming Pension Credit who could be entitled and the average claim is worth around £3,500.

“It’s also important to make the most of any private pension income. Check your pension fees and investment performance as some pension schemes charge much more than others. It may also be worth consolidating small pension pots to make your pension easier to manage, although it’s important to take advice to make sure you won’t lose out on any important benefits by transferring.”