Cost of living for retired rising faster than national average

Prudential warns that the cost of living for people aged 65 and over is rising faster than the national average. Analysis of household expenditure between 2002 and 2006 reveals that on average, annual expenditure in households where the main occupant is aged 65–74 has increased by around 9 per cent as opposed to a national average of 4 per cent. The corresponding figure for households where the main occupant is aged 75 and over is 10 per cent.

These figures are not surprising given that the average household spends 10 per cent of its annual income on food and non-alcoholic drink, compared to 15 per cent for households where the main occupants are aged 75 and over and 13 per cent for those aged 65-74. Despite all this, pensioner income is only growing by around 3 per cent a year.

If these household expenditure figures continue to rise at the same rate, the average cost of living for pensioner households where the occupants are aged 65 – 74 would rise from around £21,611 in 2005/06, to £33,619 in 2011/12 – an increase of 55 per cent. Over the same time period, for households where the main occupants are older, annual expenditure would rise by £8,633 or 62% to £22,553, as opposed to £8,038.6 (24 per cent) or £41,385.6 for the average home.

Gary Shaughnessy, Managing Director, Prudential Retail Life & Pensions, said: “When compared to the average home, older households see a greater share of their expenditure go on housing costs, fuel and household goods and services, and in recent years these have seen some of the highest increases in costs, which helps explain why retired people are seeing a higher rate than the average in their annual expenditure. This, coupled with the fact that life expectancy has increased, is putting much greater pressure on income in retirement.

Rising food prices:

In the 12 months to May 2007, the consumer prices index (CPI) increased by 2.5 per cent. However, the price for fish and vegetables rose by 12.7 per cent and 9.6 per cent respectively. Similarly, the price for milk, cheese and eggs rose by 6.8 per cent. Some experts predict that food prices will continue to rise because of two main factors, climate change and demand for commodities:

Climate change: This has contributed to severe droughts around the world which has resulted in a shortage of crops

Demand for commodities: This is increasing as a result of Chinese consumers who are switching to westernised diets and for growing demand for biofuels

Gary Shaughnessy continues: “Food prices have been rising and many predict that these will continue to do so for a number of years. Those hardest hit by this trend are retired people who spend the highest percentage of their income on food and non-alcoholic drink of any other group. Many pensioners are facing financial difficulties and this is being exacerbated by the rising cost of food.”

Growing wealth

Despite retired people facing a higher cost of living, many retired homeowners have seen their overall wealth grow as a result of rising house prices. In a recent HM Revenue and Customs report, it highlighted that property now accounts for over 50 per cent of people’s (aged 65 and over) wealth in the UK.

Type of asset Percentage of wealth tied up in this asset class by people aged 65 and over:

Residential buildings 48%
Cash 17%
Securities 16%
Other assets 11%
Other buildings and land 4%
Insurance policies 3%
Loans, mortgages etc 1%

Gary Shaughnessy, said: “The cost of living for retired people may be rising but so too has their wealth. The baby boom generation of 50 – 60 year olds currently hold £542.6 billion of home equity, but this is expected to growth to £1.425 billion by 2020. The growing challenge facing many in retirement is making sure that they are using all aspects of their wealth effectively to help fund the type of lifestyle they want in retirement.”