New research from leading online pension provider, PensionBee, reveals that savers may need to save an extra £25,000 for retirement due to rising food costs caused by climate change.
As world leaders gather this November at the COP26 United Nations summit to discuss climate change, pension savers should pause to consider the link between emissions and rising food prices. According to recent data from the United Nations, global food prices are now increasing at their fastest pace in over a decade. Climate Just, a tool to map climate change poverty, estimates that the impact of climate change could see at least a 9% increase in food costs by 2050; but should the impact of climate change be greater, they could increase by up to 28%.
Representing 11% of total expenditure currently, food is one of the largest household expenses for an average income family. The new financial modelling from PensionBee suggests that all households will feel the impact of rising food prices, and this will be more acute for retirees with smaller pension pots, who already spend a larger proportion of their income on food. The digital pension provider found that couples may need to save up to £25,000 extra to cover the increased cost of food in retirement.
Brexit will also lead to increases in food prices. With the UK now officially out of the European Union, The Food and Drink Federation has warned that more bureaucracy will lead to higher supply expenses, which will likely be passed on to retailers and consumers (1). This will add extra pressure on those with lower incomes, and exacerbate economic inequalities (2).
Although retirees tend to become more conservative with their spending as they age, today’s pensioners spend a significant proportion of their retirement income on food. According to Which?, groceries are the biggest expense for retired one and two-person households with smaller pensions living an ‘essential’ lifestyle, which entails spending money only on basic necessities such as food and housing. Food costs account for 23% of the £18,000 annual income of a retired couple living an ‘essential lifestyle’ today. They are also the second-highest expense for retired couples with pension savings worth £41,000 who can spend money on more costly extras such as new clothes, restaurant meals and long-haul holidays, as well as essentials. These households spend 13% of their annual income on food.
Rising food prices are increasing financial pressures on current retirees as well as pension savers who will retire in the future. For lower-income households, who already spend a larger proportion of their household expenditure (16%) on food, the impact of rising food prices could be catastrophic.
Clare Reilly, Chief Engagement Officer at PensionBee, comments: “The direct impact of climate change on food systems and security is a risk for every person on this planet, but the impact on the nutrition and livelihoods of the poor will be greatest. Our customers regularly tell us of their climate change concerns, so we are committed both to offering sustainable investment plans and also to researching potential risks to their retirement income. Today’s data helps to further demonstrate the urgent, direct link between the climate crisis and retirement poverty. It is yet another wake up call for governments and individuals who think climate change will not impact them and their future lives.”
PensionBee modelled four potential future scenarios using Climate Just projections and using Which? lifestyle definitions:
1) For a couple who has £18,000 a year to spend in retirement and where food prices have increased by 9%. In this scenario, a couple would then need £18,376 a year and to save an extra £5,000 for their retirement, with an overall savings pot of £265,000.
2) For a couple who has £18,000 a year to spend in retirement and where food prices have increased by 28%. In this scenario, a couple would then need £19,169 a year and to save an extra £18,000 for retirement, with an overall savings pot of £278,000.
3) For a couple who has £41,000 a year to spend in retirement and where food prices have increased by 9%. In this scenario, a couple would then need £41,477 a year and to save an extra £10,000 for retirement, with an overall savings pot of £600,000.
4) For a couple who has £41,000 a year to spend in retirement and where food prices have increased by 28%. In this scenario, a couple would then need £42,485 a year and to save an extra £25,000 for retirement, with an overall savings pot of £615,000.
Appendix
Table 1: Model 1 - Additional money required for a couple in retirement due to rising food prices
| Annual retirement income | Couples with £18,000 |
|---|---|
| Increase in food costs | 9% increase |
| Additional savings required | £5,000 |
Source: PensionBee analysis, August 2021. Calculated using retirement budgets produced by Which?, and food price increases projected by Climate Just.
Table 2: Model 2 - Additional money required for a couple in retirement due to rising food prices
| Annual retirement income | Couples with £18,000 |
|---|---|
| Increase in food costs | 28% increase |
| Additional savings required | £18,000 |
Source: PensionBee analysis, August 2021. Calculated using retirement budgets produced by Which?, and food price increases projected by Climate Just.
Table 3: Model 3 - Additional money required for a couple in retirement due to rising food prices
| Annual retirement income | Couples with £41,000 |
|---|---|
| Increase in food costs | 9% increase |
| Additional savings required | £10,000 |
Source: PensionBee analysis, August 2021. Calculated using retirement budgets produced by Which?, and food price increases projected by Climate Just.
Table 4: Model 4 - Additional money required for a couple in retirement due to rising food prices
| Annual retirement income | Couples with £41,000 |
|---|---|
| Increase in food costs | 28% increase |
| Additional savings required | £25,000 |
Source: PensionBee analysis, August 2021. Calculated using retirement budgets produced by Which?, and food price increases projected by Climate Just.
Footnotes
