Cost of a comfortable retirement revealed as pension savers given 'wake-up call' over rising income

For a comfortable retirement, couples face a £1,600 annual increase from £59,000 to £60,600, while singles see costs rise by £800 from £43,100 to £43,900.

Two retirees running one small car, eating out weekly and taking a four-star foreign holiday each year would need an income of almost £35,000 each before tax to retire comfortably in 2025, rising to £52,000 if they live alone.

The PLSA sets three retirement lifestyle standards to help people understand potential retirement costs. The minimum retirement costs £21,600 for couples or £13,400 for singles, falling by £1,000 compared to last year after a reduction in energy bills.

An expert has issued a "wake-up call" for pension savers as demands on retirement income grow.

This basic level provides only a basic clothing budget, one week-long UK holiday, no car and a monthly restaurant meal.

The moderate retirement costs £43,900 for couples and £31,700 for singles, up by £800 and £400 respectively from previous figures.

The comfortable retirement includes a weekly restaurant meal, a generous clothing budget and a two-week Mediterranean holiday.

It also provides money for birthday gifts, running a car and maintaining a property, but excludes housing costs from all calculations.

Andrew King, pensions and retirement specialist at wealth management firm Evelyn Partners, said: "For those who are early in their savings journey, a couple of issues must also be kept in mind for planning their future needs.

"One is inflation, because if £43,900 provides a comfortable lifestyle for someone now, the same number will not do so in 20 years’ time.

"In fact, if inflation averages 2.5 per cent over the next two decades, someone who thinks they would need £43,900 a year now, will need about £72,000 by 2045 - and that will require a much bigger pot than even the £540k-800k estimated for current circumstances by the PLSA.

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He explained that many savers will measure how much they need in retirement based on the sort of lifestyle they have become used to in their working life.

For higher earners who are reluctant to give up many of their lifestyle advantages, a comfortable retirement will require a higher income and a larger pension pot.

However, at retirement, individuals can also adjust their spending to match their available pension income. Making use of other assets or downsizing to a smaller property, for example, can help improve their standard of living in later life.

Two people on the full state pension would both need £12,300 more a year before tax and a pension pot of up to £250,000 for a moderate retirement, rising to £24,500 and £490,000 for a single person.

For a comfortable retirement, couples require £22,750 each before tax on top of the full state pension, necessitating a pension pot of up to £460,000.

The minimum retirement level can largely be covered by the full state pension of £11,973 for couples, with singles needing an additional pre-tax income of just £1,600.

King said: "The state pension might not be as generous, or available at the current age levels, for those who are currently many years away from retirement.

"That doesn’t affect living cost requirements but it does mean a bigger private pension pot will be needed to provide their desired income as the state pension can be expected to contribute less.

"What is clear is that workers must thing very seriously about how much they will need in retirement, and even more seriously about how much they are saving right now.

"Certainly, the base auto-enrolment contribution rates will not be enough for many to have the retirement they want."

Anyone living alone on the state pension would fall short of even a basic retirement of £13,400, as millions anxiously wait to see whether Labour will reinstate their Winter Fuel Payment.

Zoe Alexander, director of policy and advocacy at the PLSA, said the majority of people of working age are under-saving for retirement under the eight per cent auto-enrolment rules.

"We think the majority of people of working age are, at 8 per cent under auto enrolment rules, under-saving for retirement and there's a significant risk that many won't reach the standard of living they expect," she said.

According to Scottish Widows, 15.3 million people currently save into a defined contribution pension and 20 per cent of them are heading towards poverty in retirement.

Alexander emphasised that the standards are designed to help people think about the kind of lifestyle they want in retirement and tailor their savings accordingly, rather than serving as fixed targets.

The retirement standards exclude housing costs, creating significant concerns for future retirees who may still be renting.

Scottish Widows found that around 3.5 million current pension savers will face housing costs in retirement of £10,600 a year on average, potentially doubling the country's housing benefits bill.

Helen Morrissey of Hargreaves Lansdown warned that more people are approaching retirement with rental costs.

"They don't include things like rental costs and this is really difficult because we're going to see more and more people approaching retirement with rental costs," she said.

Morrissey added that many people aren't saving enough and risk getting a nasty shock if they don't check their pension throughout their working life.