Savers aiming for a comfortable retirement now face the daunting prospect of having to build a pension pot of more than £800,000.

New estimates from the Pensions and Lifetime Savings Association (PLSA), an industry body, show that savers must put away hundreds more each year to offset higher expected living costs.

The PLSA’s annual Retirement Living Standards, a widely respected benchmark, outlines three tiers of retirement lifestyles: minimum, moderate and comfortable.

To enjoy a comfortable retirement — which includes dining out weekly, a £75 weekly food shop and an annual two-week foreign holiday in a four-star hotel — a single person requires £43,900 a year in spending money, up from £43,100 last year. This sum is post-tax and assumes no mortgage or rent obligations.

After factoring in the full state pension of £11,973 per year, an individual would need a pension pot of £805,000 to purchase an annuity that delivers this amount, according to analysis by the wealth manager Quilter. This is up from £788,000.

A couple would need £60,600 a year between them for a comfortable retirement, up from £59,000 previously. This would require a pot of about £455,000 each on top of their full state pensions.

For those with more modest ambitions, a “moderate” retirement lifestyle, which allows for a restaurant meal once a week, a £56 weekly food shop and an annual two-week holiday in a three-star hotel, now requires about £31,700 a year, up slightly from £31,300. This would necessitate a pension pot of approximately £490,200, up from £489,600. A couple would need £43,900 between them, up from £43,100, requiring a pot of about £246,000 each.

The good news is that the amount required for a “minimum” lifestyle has dropped, largely due to falling energy bills. This basic tier, which includes a meal out once a month, a £55 weekly food shop and a one-week holiday in the UK, now requires £13,400 a year, down from £14,400. A couple would need £21,600, down from £22,400.

An single person would need a pension pot of £28,000to fund this lifestyle, and for a couple, the state pension alone would cover their costs.

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The latest figures are likely to be a rude awakening for many savers. Research by the wealth manager Interactive Investor, based on a poll of 5,000 pension savers, found that people aged 55 and under mistakenly believe they need £350,000 in pension savings to achieve a comfortable retirement — less than half the amount required.

Myron Jobson from Interactive Investor cautioned that the PLSA figures should serve as guidance rather than rigid rules because individual circumstances and retirement expectations vary greatly.

The introduction of pension auto-enrolment in 2012, which means that workers aged at least 22 and earning at least £10,000 a year are automatically signed up to their company pension scheme, has been a resounding success in boosting pension participation.

The proportion of employees paying into a workplace pension has surged from 48 per cent in 2011 to 80 per cent in 2023, according to government figures. However, experts warn that the minimum contribution levels are not enough for most people to achieve anything beyond a basic standard of living.

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Under auto-enrolment, the minimum contribution is 8 per cent of qualifying earnings, with the employee contributing 5 per cent and the employer 3 per cent.

Mike Ambery from the pension company Standard Life said: “Auto-enrolment has brought millions into pension saving. However, the minimum contribution level could create an illusion of security when in reality it is not enough for most people to achieve anything more than a basic standard of living in retirement.”

This system also excludes the self-employed and many low earners or part-time workers whose earnings fall below the £10,000 threshold.

The age at which you begin saving plays a pivotal role in how much you need to save each year to achieve your desired retirement lifestyle. This is because the further you are from retirement, the more time your investments have to grow.

For example, a saver in their twenties aiming for a comfortable retirement would need to contribute approximately £4,100 a year to their pension, according to analysis by the investment platform AJ Bell.

For those who don’t start saving until their forties, the figure rises to about £13,160 annually. These figures are based on an assumed annual investment growth of 4 per cent after charges, with income levels increasing by 2 per cent each year.

It is never too late to take action and increasing contributions can significantly improve your retirement prospects.

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Someone in their mid-thirties and contributing the minimum 8 per cent into their pension would need to increase this to 13 per cent to move from a minimum to a moderate retirement lifestyle, according to Standard Life. They would need to contribute 23 per cent to reach a comfortable lifestyle.

This assumes a starting salary of £25,000 at age 22, growing by 3.5 per cent a year plus annual investment growth of 5 per cent and charges of 0.75 per cent a year.

For those in their mid-forties, increasing contributions to 15 per cent could secure a moderate retirement, while a substantial 30 per cent would be needed for a comfortable one. Someone in their mid-fifties would need a 20 per cent contribution for a moderate retirement, and a formidable 48 per cent to achieve a comfortable one.

Are you worried about your income in retirement? Let us know in the comments below