Inflation means pension savers will need extra £90k

Inflation means pension savers will need extra £90k

Pensioners will need an additional £90,000 to maintain a comfortable lifestyle due to inflation, according to research.

The high level of inflation we are currently seeing (CPI hit 10.1 per cent last month), means pensioners may need to increase their withdrawals by £2,000 annually to maintain a comfortable retirement, and £3,000 to preserve a “luxurious lifestyle”.

Online pension provider PensionBee has modelled the impact inflation will have on retirement portfolios, saying the average retiree required an annual income of £19,000 to maintain a comfortable lifestyle, which is an overall pot size of £330,000.

This is assuming an annual growth rate of 5 per cent, and 0.5 per cent in fees.

However, rising inflation has pushed that up to £21,000, adding £90,000 to the total required pot size, with those wanting a more luxurious lifestyle needing £3,000 more, or £34,000 a year.

Chief executive of PensionBee, Romi Savova, said this modelling highlights the “real impact” of high inflation on pension savers, especially those who are already withdrawing from their pensions.

“Despite the alarming numbers, we want to reassure savers that it's possible to increase the value of their pension by following a few simple steps, without needing to increase their contributions at a time when finances are already tight,” she said.

The modelling assumes inflation will have hit an average of 10 per cent in 2022 and 2023, 5 per cent until 2028 and 2.5 per cent for the next 13 years.

Meanwhile, the number of people opting out of their workplace pension scheme has risen by 29 per cent between March and July this year, according to analysis by pensions provider Penfold.

The data came from Penfold’s customer base, composed of 5,027 onboarded employees. It noted that rising opt-out rates come at a time of acute financial strain, with inflation reaching 10.1 per cent in the 12 months to July according to Office for National Statistics estimates — a 40-year high.