Retired consumers are spending less due to the impact of coronavirus, with travel and recreation costs seeing the biggest fall, new Which? research has found, as the consumer champion releases its annual cost of retirement results.
A survey of 6,300 Which? members highlights that overall retiree spending is down five per cent on last year and the spending areas with the biggest cuts are those most affected by the impact of the pandemic.
Single retirees spent a fifth less on extended holidays, while recreation and leisure spending is down by 13 per cent for couples and 14 per cent for singles.
However, retired couples are still spending just as much on groceries and utilities.
New analysis by the consumer champion also shows that retired couples need an average income of £17,000 a year to cover spending on essentials – such as groceries and bills.
The figure rises to £25,000 when including more spending on leisure activities, and to £40,000 a year after tax for those looking to live a ‘luxury’ lifestyle, including long-haul holidays and health club memberships.
Single-person households spend an average of around 70-75 per cent of the outlay of two-person households, but only benefit from roughly half of the state pension entitlement and tax-free allowance of a couple.
This puts the income targets for essential, comfortable and luxury spending for single retirees at £12,000, £19,000 and £30,000 respectively.
Which?’s calculations show that once the state pension is factored in, couples will need a gross annual income of £3,040 from private pensions to achieve the essential net income target, rising to £11,040 for a comfortable retirement and £29,790 for a luxury one.
For single-person households, that equates to £5,020, £13,635 and £27,395.
Four in five of the households surveyed by Which? count final salary schemes among their sources of retirement income. This provides an average of nearly £22,000 a year, meaning that many are able to enjoy a comfortable retirement, before any additional income from the state pension.
Couples relying on income from a defined contribution pension (plus the state pension) would need a total pot of just over £169,000 to achieve a comfortable retirement if opting for pension drawdown (assuming growth of 3 per cent a year), or £262,500 for a joint-life annuity.
Separate Which? research from June found that more than half of people yet to retire reported that they are worried about their pensions falling in value, while a quarter of those who are already retired are now concerned about making their pension savings last.
Those who are already generating retirement income via their own investments, including pension drawdown, are more exposed to the economic turbulence seen over the past few months.
Which? advises that the best way to minimise the risk of selling at a loss, and potentially running out of money in retirement, is to avoid cashing in your investments as far as possible during this period, giving the markets the chance to rebound. Instead, turn to other income sources if possible, such as cash savings.
Jenny Ross, Which? Money Editor, said:
“The results of our survey provide a detailed picture of the spending habits of people in retirement, which should provide those preparing for it with a better idea about how much they’ll need in their pension pots.
“Perhaps unsurprisingly, the impact of coronavirus has seen retirees cut back on their spending in areas like travel and leisure this year, and there is clearly concern about how the economic instability may affect people’s savings.
“If you’re yet to retire, think very carefully about reducing your pension contributions or opting out altogether, as this could set back your retirement plans.”
Notes to editors
- The cost of retirement survey is based on a survey of 6,300 Which? Members.
- The figures for gross annual income required (eg £3,040, £11,040 and £29,790) assume a couple receive annual state pension of £13,962 and an individual gets £6,981. Tax-free personal allowances of £25,000 (couple) and £12,500 (individual) apply before tax is deducted.
- Coronavirus survey on pension spending covers 1,239 respondents and was carried out in June.