PENSION ALERT: COST OF 'COMFORTABLE RETIREMENT' FALLS TO £682K BUT BRITONS STILL NEED 'SUBSTANTIAL' SAVINGS

The cost of the average Briton securing a comfortable retirement has dropped in win for future retirees, but analysts are sounding the alarm that pensioners will need to have a "substantial" amount in savings.

Analysis from wealth manager Quilter shows that a single person requires a pension pot of £682,000 to secure a comfortable retirement lifestyle, marking a decrease from the previous year's figure.

The reduction stems primarily from more favourable annuity rates currently available in the market, with data from Canada Life signaling rates have soared to a 16-year high.

These calculations draw on the Pensions and Lifetime Savings Association's Retirement Living Standards (PLSA), updated in June 2025 to incorporate changing retirement expectations, revised inflation projections and the new full state pension.

It should be noted that these figures assume a 5.9 per cent escalating annuity rate for someone aged 66, with no housing costs during retirement under the assumption retirees are mortgage-free.

Those seeking a moderate retirement lifestyle need to have accumulated £415,000 in their pension pot. The PLSA standards outline three distinct retirement lifestyles.

A minimum retirement lifestyle in the UK includes covers essential needs, including a basic weekly food shop, one week-long UK holiday annually, and minimal discretionary spending.

In comparison, a moderate lifestyle for Britons in retirement allows for several restaurant meals monthly, a fortnight's European holiday, and greater spending flexibility.

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A comfortable lifestyle encompasses regular dining out, extended overseas holidays, generous clothing budgets and the financial capacity to support family members through gifts or monetary assistance.

These lifestyle categories help individuals gauge the retirement income required for their desired standard of living.

UK annuity rates have increased significantly following rising gilt yields, driven by persistent inflation, potential tariff policies and delays to expected interest rate reductions.

Higher rates have temporarily reduced the pension savings required to generate retirement income.

However, this reprieve may prove short-lived, according to some analysts.

Jon Greer, the head of retirement policy at Quilter, cautioned: "As interest rates are expected to fall over the next year, annuity rates will follow suit, meaning the pension pot required to secure the same level of retirement income will increase again."

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Greer emphasised that the calculations assume retirees own their homes outright or face no rental costs in later life - "an increasingly rare scenario for future generations".

He also highlighted forthcoming tax changes, warning: "From April 2027, pensions will no longer be exempt from inheritance tax if left untouched at death.

"Building up a large pot without a strategy could create an avoidable tax liability, making professional advice all the more important."

Despite the temporary reduction in required savings, Greer noted that "the overall cost of a comfortable, or even moderate, retirement remains substantial," with the figures serving as crucial benchmarks for retirement planning.

2025-06-05T19:00:31Z