A comfortable retirement costs £4,200 more a year than it did in 2022, according to new calculations.
Pensioners now need a total income of £47,700 in July 2023 for a comfortable retirement compared to £43,500 in April 2022, analysis from interactive investor suggests.
Assuming a retiree gets a full new state pension of £10,600, it would mean they need £37,100 private pension income, compared to £32,900 in April 2022.
To generate £4,200 additional pension income, pensioners would need a private pension pot of around £598,700 – £68,700 more than the £530,000 needed in April 2022.
Alice Guy, head of pensions and savings at interactive investor said: “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.”
The calculations, based on the 2022 PLSA Retirement Living Standards (which were based on inflation up to April 2022), take account of inflation up to July 2023.
The private pension pot needed to generate enough pension income is based on the same assumptions used by the PLSA calculations, but interactive investor warned that in reality, most pensioners choose income drawdown rather than an annuity so the actual pension pot needed may be slightly different.
The analysts said for the “minimum” standard of living, the total pension income needed would now be £14,300 a year – a rise of £1,400.
The “moderate” level, which the PLSA said was £26,000 last year, would now be £28,600, interactive investor said.
Ms Guy said: “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 a scary 61 per cent 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.
“For people retiring today, higher interest rates also mean you don’t need to have saved as much to secure the same level of income through an annuity as you would have even just a few months ago.
“However, at the minimum pension savings rates currently prescribed under the UK system, many people won’t save enough to achieve the retirement they might expect.”