The increasingly higher cost of retirement in the UK

25 July 2024

Written by Retirement Line

Over the last few years, the cost of living in the UK has risen significantly – something which disproportionately impacts retirees. With inflation rates climbing and essential goods and services becoming more expensive, many pensioners are finding it increasingly difficult to manage their finances. 

Many of us have felt the general cost of living increases, such as food, and these pressures are particularly acute for those on fixed incomes. This article takes a look at these changes and why they particularly affect the retired population. 

The impact of inflation 

Inflation in the UK has increased significantly, driven by factors like global supply chain issues due to the war in Ukraine, higher energy costs and rising food prices. 

In the year leading to May 2024, the Consumer Prices Index (CPI) inflation rate rose by 2% - the Bank of England’s target. Though it means prices are 2% higher than a year earlier, it is an improvement on the 11.1% rate of inflation seen in October 2022 – the highest rate for over 40 years.

Inflation can be tough for pensioners in particular. This is because income from some pensions don’t always rise in line with inflation. The same is true of income from savings and investments. Also, retirees may have less opportunity to earn extra money than younger people.

This can all add up to the pressure of making ends meet when prices for goods and services go up. With higher costs for essentials such as food and heating, some retirees might be finding it hard to manage their finances.

Energy costs

Energy prices have seen a sharp rise due to geopolitical tensions and supply problems. Gas and electricity bills have gone up, which is a particular burden for retirees who tend to spend more time at home. 

The government's energy price cap has provided some relief, but the BBC reported on 1 July that the typical annual dual-fuel bill paid by direct debit is still a hefty £1,568 per year.

The fact remains that although energy bills have fallen to their lowest in two years, they are still around £400 higher per year than they were three years ago.

Food prices

Food prices have also gone up, with staples like bread, milk and vegetables becoming more expensive. Food prices are on average 25% higher than they were at the beginning of 2022. Olive oil, for example, is a staggering 39% more expensive than it was a year ago, and lamb is 10% more expensive.

This increase has been attributed to a number of factors, including higher transportation costs, worker shortages and bad weather affecting crops. For pensioners, this means spending more to maintain a healthy diet, adding pressure on their limited budgets.

Housing costs

While mortgage rates are a concern for many, retirees who own their homes outright aren't typically affected by rising interest rates. However, those who are renting or still paying off mortgages could well be feeling the pinch. 

According to the latest data from the Office for National Statistics, the cost of housing and household services rose by 2.1% in the 12-months leading to May 2024. Specifically, owner occupiers' housing costs rose by 6.7%.

Council Tax has also increased, which significantly impacts retirees on fixed incomes. According to Gov.uk, the average Band D council tax in England for 2024-25 is now £2,171 – an increase of £106 or 5.1% on the 2023-24 figure.

Home insurance is more expensive now too, with the Financial Times reporting that the median cost of home insurance policies shot up by 36% over 2023, according to data from Go Compare.

Routine tasks like fixing a leaky tap or a boiler service might also set you back more than it would have done a couple of years ago. Hiring tradespeople like plumbers, electricians and builders has typically become more expensive. That’s due to higher wages for skilled labour, increased material costs, and a shortage of qualified professionals. 

Healthcare expenses

While the NHS provides comprehensive coverage, some retirees still face out-of-pocket expenses for certain treatments, medications or private healthcare services.

Whilst prescriptions are free for over-60s, dental care costs are rising, and not everyone can access NHS dental care due to long waiting lists. The cost of private healthcare, including homecare services, is also increasingly expensive. Higher wages for caregivers and increased operational expenses mean that private homecare, which many elderly individuals rely on, now costs more.

According to the NHS, having a live-in carer costs from around £800 a week, but they say “it can cost as much as £1,600 a week if you need a lot of care”.

Leisure costs

Leisure and social activities, which are important for retirees' well-being, have become more expensive too. For example, the cost of eating out has increased. According to the Standard, latest figures from Hardens restaurants guides reveals that the average price has risen by an average of 10.7% in London and 14.7% outside the capital last year.

One reason for this is that some employers saw a big fall in the number of chefs and waiting and bar staff following Brexit and the Covid pandemic. To attract more job applicants, businesses offered higher wages – but their prices had to rise to cover those costs. This situation is particularly prominent in the services sector, where wages are the largest part of business costs.

Running a car

Running a car has become more expensive, especially due to rising insurance costs. 

According to the car insurance price index from Confused.com, car insurance premiums in the first quarter of 2024 were 43% more expensive year-on-year. Their latest data shows that the average cost of a comprehensive car insurance policy is £941 - an increase of £284 in a year.

Fuel prices remain high, adding to the overall cost of maintaining and using a vehicle, which can be essential for retirees living in more rural areas or those with limited mobility.

Government support

In response to the rising cost of living, the UK government has implemented several measures to support retirees. These include increases in the State Pension and other benefits such as the Cost of Living payments, as well as payments to help with energy bills. 

In April, the full new State Pension rose by 8.5% to £11,500 a year, and the new Labour government's commitment to the triple lock pledge provides the assurance of future rises. The "triple lock" pledge ensures that the state pension increases each year by the highest of three measures: inflation, average earnings, or 2.5%. 

Additionally, targeted government assistance such as Winter Fuel and Cold Weather Payments help to mitigate some of the financial pressures faced by retirees.

While government support such as those mentioned does bring some relief to those who need it most, the need for careful financial planning and careful budgeting is more critical than ever.

It is essential that our most vulnerable populations, including pensioners, receive the support they need to navigate these challenging times. By staying informed and making necessary adjustments, retirees can better manage the rising cost of living and achieve a comfortable standard of living.

Sources:

Consumer Prices Index (CPI) inflation rate rose by 2% in May: Consumer price inflation, UK: May 2024. Office for National Statistics. Accessed 13 July 2024.

Typical annual dual-fuel bill paid by direct debit is now £1,568 per year: What is the Ofgem energy price cap and how much are bills falling? BBC.co.uk. Accessed 13 July 2024.

Average Band D council tax in England for 2024-25 is now £2,171: Council Tax levels set by local authorities in England 2024 to 2025. Gov.co.uk. Accessed 13 July 2024.

Median cost of home insurance policies shot up by 36% over 2023: The painful rise in home insurance costs. The Financial Times. Accessed 13 July 2024.