Retirees may have to work two years longer

Emma Woollacott
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Today's workers could face having to work significantly beyond their planned retirement dates as earnings fail to keep pace with inflation.

An analysis of Office for National Statistics data by pension specialist MGM Advantage shows that the squeeze on earnings is affecting pension contributions too - and to such an extent that it threatens people's retirement plans.

A thirty-year-old earning the average UK salary between 2009 and 2014 would have seen their monthly pension contributions, at 8%, increase from £169 to £184. If, though, their pay had kept pace with inflation, those monthly pension contributions would have increased to £225.

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And when you look at this difference over a 30 year period, it makes a surprising difference, with a pension pot £8,329 lower than it might have been. Compensating for this shortfall would mean working for an extra two years.

"The impact of falling real pay has hit workers hard. It is reducing their standard of living now, and will potentially reduce their standard of living in retirement too," says MGM Advantage's pensions technical director Andrew Tully.

"This sleeping giant will only rear its ugly head when people come up to retirement, and means many may have to work for longer than planned, or re-evaluate expectations of their retirement."

Tully says that younger workers should be planning ahead to try and make up for the potential shortfall.

"This is not only an issue for people approaching retirement, but also something younger generations need to think about," he says.

"For people who do have time on their side, the implications of lower pension contributions are relatively easy to address through making larger contributions now to make up the shortfall."

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In any case, many people choose to work beyond retirement age: a survey released this week by Prudential found that half of people reaching state pension age this year plan to do so, with four in ten of those people saying it's by choice.

And research by Friends Life and the Pensions Policy Institute this week showed that deferring a state pension for five years and continuing to work full time could see pension income rise by a third.

"This has revealed that working up to and beyond state pension age, for those who can and want to do this, offers a real alternative to saving more or having a lower than ideal income in retirement," says Chris Curry, director of the Pensions Policy Institute.

Read more on AOL Money:
One in five Brits work in retirement

State perks for working beyond 65 are slashed

Retirement age may rise 6 months a year

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