Living on your own in retirement is bad for your wealth

The analysis combined the MoneyHelper’s annuity tool to expose the different pension pots needed to secure the Pension and Lifetime Savings Association’s (PLSA) minimum, moderate and comfortable standards of living in retirement.

A minimum living standard. – enough for the basics and a one week UK holiday a year but no car – require an annual income of £12,800, according to the PLSA.

To maintain this standard of living, a retiree requires an income of £2,300 before tax each year on top of a full state pension (currently £10,600).

To secure guaranteed income for life with an RPI linked annuity, would require around £53,000 in retirement savings at current rates.

To achieve the same standard of living, PLSA’s Living Standards show that pensioner couples need an annual income of £19,900, or less than two full state pensions, without the need for any additional savings to cover a basic retirement lifestyle.

The moderate retirement standard of living – a car and one two week foreign holiday a year – will require an annual income of £23,300. A single person in receipt of full state pension would require an annuity providing £14,900 a year, after income tax, which would cost around £315,000.

Pensioner couples would need an annual income of £34,000, which they could achieve from a pension pot of £310,000 – or £155,000 each – around half the amount of a single pensioner.

Those seeking a comfortable living standard, which allows for a three week foreign holiday, a full kitchen and bathroom replacement every 10-15 years and a £1,500 a year clothing and footwear budget, would require a pot of around £675,000, compared to 835,000 for pensioner couples.

At around £418,000 each, single pensioners need to save an additional £257,000 to achieve the same lifestyle as a couple.

Retirement savings needed for single pensioners and pensioner couples to secure an annuity – guaranteeing an income for life:

Figures assume retirement at the age of 66, single life annuity, no guarantee, paid monthly in arrears, linked to RPI, non-smoker with no underlying health conditions. Account for tax free income up to personal allowance and then income taxed at 20%.

Dean Butler, managing director for retail direct at Standard Life said: “Whether single by choice or by circumstance, single people have to front a whole host of expenses on their own – from mortgage or rent payments, utility bills and council tax, to broadband, holidays and TV subscriptions – and unfortunately these aren’t automatically half the amount that couples pay. It’s a similar situation when it comes to pension savings too.

“While couples can pool their finances for retirement, single people need to support themselves independently. As our analysis shows, single pensioners need to amass a bigger pension pot to achieve the same standard of living as pensioner couples.

“It’s therefore particularly important that single people start thinking about their retirement finances as early as possible. It’s also a fact of life that not all relationships last, and there’s a chance couples will divorce – in this scenario, awareness of these figures are a good place to start when thinking about how to approach pension sharing and the possibility of a single retirement.” 

Data from the Office of National Statistics shows that in 2019, 3,258,000 people over the age of 70  lived alone. This number has increased year on year and is more than half a million higher than a decade before.

If you know the lifestyle you are targeting the PLSA Retirement Living Standards tool will help you plan how to get there, said Butler.

“Consider making top ups to the amount you regularly pay into your pension if you get a pay rise for example, or make a one-off contribution following a bonus. Clearly, it’s a difficult economic environment at the moment, but your future self will thank you for taking any opportunity to put money away for retirement.”

Nigel Peaple, director of policy and advocacy at the PLSA said whether single or in a couple, the good news is that a combination of a full state pension and modest savings in a private or workplace pension will get most people to the level of the Minimum Retirement Living Standard, which will meet all of your basic needs.

And for people retiring today, higher interest rates also mean they will not have saved as much to secure the same level of income through an annuity as just a few months previously.

“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,” added Peaple.

“The key is to change pension policy so that employers help people save more. We are calling on the government to gradually increase automatic enrolment saving from the current level of 8% up to around 12%, starting after the cost-of-living crisis has eased at some point in the later 2020s and finishing in the early 2030s.

“We want to see a move to a 50/50 split, so employers pay in the same as their employees. If the UK does not increase its pension saving, many more people will fail to have the pension income they have hoped for and be left with no choice but to keep working late into their 60s.”