A saver who accumulates a pension pot of £80,000 to buy a level annuity will spend their entire monthly income (from private and state pensions) on basic living costs like food and fuel within 20 years of retirement, a study has found.

The calculations were done by Standard Life using  Office for National Statistics data and official Government inflation figures.

Andrew Tully, Senior Pensions Policy Manager, Standard Life, said: “The cost of living is rising fast for most people in the UK, but this is particularly acute for pensioners.  Their spending habits are driven by commodities such as food and fuel bills, and these inflation rates are much higher than the overall UK inflation rate.

Savers wanting to put money aside for their retirement, and wondering whether they can get a better deal by saving within a pension scheme or by putting their money in a more flexible individual savings account (ISA), now have the answer, after some number-crunching by independent financial advisers Hargreaves Lansdown.

When you are saving for retirement it makes sense to take advantage of all the tax breaks you can in order to maximise the funds available.

Most people when considering retirement savings will join some kind of official pension scheme. If they are lucky, they will be able to join a company scheme, and benefits will either be linked to their final salary, or, if the scheme is a “money-purchase” one, the employer will add to the contributions made during the working years to fund the pension in retirement. Otherwise they will have their own personal pension plan. The advantage of these schemes is that they can provide a guarantees income in later life and they receive generous tax breaks on contributions.

Only the most optimistic person believes the state will take care of them in their old age. Yet research shows that more than a quarter of the population has no pension provision at all, and as many as half of us are not saving enough for our retirement.