- New AJ Bell research shows the impact of rising costs on retirees’ income*
- 26% of retirees don’t own their home outright, and one in five are renting
- Around half of retirees say increases to housing costs − such as mortgage payments, rent, service charges, or maintenance − have affected how long they expect their pension savings to last
- On average retirees spend 40% of their regular pension income on essential household bills
- This Pension Awareness Week, AJ Bell highlights the importance of long-term planning to ensure an adequate retirement in the face of rising costs
Sarah Coles, head of personal finance at AJ Bell, comments:
“Soaring costs have hit retirees hard. The price of essentials dominates their spending, and those costs have risen dramatically, and at the same time one in five of them are still renting, and paying a terrible price for runaway rents. New research by AJ Bell highlights the horrible squeeze all this is putting on people’s pensions right now.
“The past few years have seen retirement incomes rise surprisingly slowly. Government figures show that the average single pensioner’s income increased by just 6.4% between 2021/2022 and 2024/2025, from £312 a week to £332 a week.** This is despite the triple lock on the state pension, and comes down to how some people draw an income from their pensions. If they have opted for a level annuity, it will pay the same income for life, and lose buying power with each passing year.
“At the same time, price inflation has hit far harder, because cumulative inflation over this period has been 24.9%, according to data from the ONS. It means pensioners are having to cut back on discretionary spending and stretch their incomes further to make ends meet.
What are retirees spending their income on?
“A significant number of retirees are still having to cover housing costs during retirement. Our research found that one in five retirees are currently paying rent. This is particularly notable given that Pensions UK Retirement Living Standards, which suggests the kinds of incomes people need for a minimum, moderate, comfortable or lifestyle, assume you own your home outright. Even then, the sums required can seem punchy, so covering housing costs on top would require even more pension savings.
“The fact that housing costs have been rising so quickly – with runaway rents and higher mortgage rates – has meant covering this cost from a pension income has been a real challenge. In fact, 51% of retirees surveyed with a mortgage said increased mortgage payments have affected how long they expect their pension savings to last, while 65% of those renting said increases in rent payments could impact their pension in the same way. 45% of retirees said increases in service charges, general repairs and housing maintenance would affect their pension savings, and 59% of retirees said increases in the cost of heating/cooling their home had impacted how long they expect their pension to last.
“Even if there are no major housing costs to cover, the research showed that a significant chunk of retirees’ income is spent on essentials. On average they spend 40% of their regular pension income on essential household bills. Meanwhile, almost half (49%) of retirees say they spend a fifth – or less – of their income on the nice-to-haves that make retirement something to look forward to.
Making a plan
“If we’re going to keep on top of rising prices and still have some money left to help us actually enjoy retirement, it’s vital to plan effectively, plenty of time before retirement. Pension Awareness Week is a handy nudge, and a real opportunity to see where you stand. It’s a good idea to start with a pensions calculator to see if you’re on track for the retirement income you need, or whether you need to boost your contributions.
“If you’re putting money into a workplace pension, and only making the minimum contributions you have to under the auto-enrolment rules, it’s worth checking with your employer if they will match any extra money that you pay in, up to a certain level. Many employers do offer some kind of matching, and you could be missing out on extra ‘free money’ if you overlook it.
“Consolidating your pension can also help you make more informed decisions about retirement, and whether you’re on track to achieve your desired income. Many providers, including AJ Bell, offer a free pension finding service which allows you to combine your pots in one place. This can result in easier administration as well as lower costs, meaning your pension keeps more of your investment returns over the long term.
“There are also decisions to make about how you draw your income. The good news is that the pension freedoms which have been in place for the last 10 years give you more flexibility over your pension income. Previously the vast majority of people had to buy an annuity, which provided an income for life – either rising with inflation, rising by a fixed percentage each year, or remaining flat for the rest of your retirement. Now most people opt for flexible withdrawals from their pension, which lets you take less when your needs are lower, and increase payments when you need them. It’s vital to assess the impact on your overall pot when increasing withdrawals, but the flexibility is invaluable.”
*Source: AJ Bell/Opinium. Based on a survey of 1,000 retirees between 26 August and 1 September 2026.
**Source: Pensioners’ Income statistics
