Thousands forced to delay retirement or go back to work as cost of living bites

Inflation has pushed up typical bills for pensioner households by nearly a fifth, leaving many older employees with no option but to delay retirement plans, financial experts warn.

The pension required to fund a modest lifestyle has surged from £10,900 in 2021 to £12,800 in 2022 (a rise of 18 per cent) for a ­single person and from £16,700 to £19,900 (19 per cent) for a couple.

Pensions expert Scott Gallacher of Rowley Turton said: “The recent cost-of-living crisis is having a ­significant impact on retirement plans, particularly for those in the ‘squeezed middle’.

“I have seen first hand the effects of this crisis, with clients postponing retirement by several years.”

Rising prices for food, fuel and energy caused by the war in Ukraine pushed up bills most over the year, says an ­inflation update by the Pensions and Lifetime Savings Association.

Its stark analysis found that all three retirement income standards – minimum, moderate and comfortable – are now more expensive.

The moderate retirement income level has increased by 12 per cent, from £20,800 to £23,300 for a single retiree and by 11 per cent, from £30,600 to £34,000 for a couple.

And the income level for a comfortable old age has increased by 11 per cent for a single person (from £33,600 to £37,300) and 10 per cent (from £49,700 to £54,500) for a two-person household.

Last month’s Government ­figures showed six in 10 of those in their 50s and four in 10 of ­over-60s are considering going back to work because of growing financial pressures.

The disproportionate increase in the cost of ­retirement for those on minimum living ­standards means the Government’s commitment to the state pension triple lock – campaigned for by the Daily Express – is particularly important, the PLSA argued.

Nigel Peaple, director of policy and advocacy at the PLSA, said: “The past year has been an enormously challenging one for many households in the UK.

“Inflation has risen to its highest rate in 40 years with the cost of essentials and domestic fuel soaring, putting substantial pressure on incomes for working age and retired households – particularly for those on low incomes.

“These figures have underlined why the Government was right to increase the state pension in line with the triple lock in its Autumn Statement.”

Phil Brown, director of policy at People’s Partnership, provider of the People’s Pension, said: “These revised figures from the PLSA are further proof, if needed, that few are immune from the cost-of-living crisis. Our own research has previously shown that through pension saving alone, only 18 per cent of the population would achieve a moderate standard of retirement.

“While four per cent would enjoy a comfortable retirement – and it is highly likely that number has reduced in recent months.”

The minimum retirement income standard includes £96 for a couple’s weekly food shop, a week’s annual holiday in the UK, eating out about once a month and some affordable leisure activities about twice a week, plus £12-a-week for wine. This level of income does not include a budget to run a car.

A couple with a moderate living standard could spend £127 on the weekly food shop, have a two-week holiday in Europe and eat out a few times a month.

The standards for retirees enjoying a comfortable lifestyle factors in regular beauty treatments, theatre trips and three weeks holidaying in Europe per year. A couple could spend £238 per week on food shopping. The increased cost of running a car with moderate and comfortable living standards over the past year has resulted in this element of the budget increasing, the PLSA said.

The standards and budgets are regularly reviewed to keep up with changes in people’s expectations of what retired households need in addition to price rises.

Emma Douglas, director of workplace savings and retirement at Aviva, sees some positive spin-offs for employers and employees from the negative of delaying plans. She said: “Pension pots that might have sustained a targeted living standard might now fall short.

“Employees approaching retirement without the pension pot they would like could reduce their hours rather than fully retiring.

“This could be a win-win for employers and employees.

“Employers keep experienced staff and employees boost their pension contributions and are less reliant on their pension fund.”