Pensions UK warns most workers face income drop in retirement

Too many people face a cliff-edge drop in income when they retire, with more than three quarters not on course to save enough for a moderate lifestyle, a pensions trade body has warned.

A new report by Pensions UK said a moderate lifestyle costs £32,700 a year for one person and £45,400 for two, but estimated just 23% of the working population were on course to reach that level. Rising bills have pushed up the cost of retirement.

The report put the cost of a minimum retirement lifestyle at around £13,900 a year for a single person and £22,500 for a couple. A comfortable lifestyle was estimated at £45,400 for one person and £62,700 for two. Pensions UK said only 9% of workers were on track for the comfortable level.

The figures are developed and maintained by the Centre for Research in Social Policy at Loughborough University and are meant as a guide for retirement planning. The minimum standard covers a couple's weekly groceries, a week's holiday in the UK, eating out about once a month and some leisure activities twice a week.

Some 82% of the working population would reach the minimum standard, the report said. "Far fewer will go beyond that. That is out of step with what people expect for their future. Without action, too many risk facing a cliff-edge drop in income when they stop work," said Zoe Alexander of Pensions UK.

The incomes needed had risen from a year ago, mainly because of higher food and socialising costs, the report said. The increases tracked inflation, though housing costs were left out.

Pensions UK said workers, employers and the government should do more to encourage and contribute to retirement saving. Last year the government said it was reviving the Turner Pension Commission, whose 2006 report led to automatic enrolment. Ministers and the commission's interim report said people were not saving enough, with those retiring in 25 years set to be £800, or 8%, worse off each year than their counterparts today.