Report reveals the death of retirement

Early retirement

If today's workers want to retire and have the kind of lifestyle that current pensioners are enjoying - then they'll need to work into their late 70s at the very least - and millions of people will never be able to stop working.

Never retire

The Death of Retirement report by Royal London came to the conclusion that millions of people will never be able to retire, if they want to be comfortable in their old age.

It worked on the basis that workers contribute 8% of their salary - the minimum level that the government has set as part of the auto-enrolment system. It calculated how long people would have to work while saving at this level in order to earn two thirds of their pre-retirement income (assuming they want to protect it from inflation and provide for a surviving spouse).

It found that even someone who started working and saving at this rate at the age of 22 would need to work to the age of 77 to secure this kind of pension.

Even if they settled for the somewhat less comfortable position of earning half their pre-retirement income, they would need to stay in work until they hit the age of 71.

Even worse

Of course, in either situation, if they took time out to have children or raise a family, they would have to postpone retirement for as many years as they were out of work and halted pension contributions. It would mean someone working from the age of 22 and taking five years out to have a family, would be able to retire at 76 on half their pre-retirement income or 82 on two-thirds of their salary.

If they opt out of the pension in the early years because they are on a low income and need the cash for student loans or the cost of living, then they will continue to push back their potential retirement age. It's easy to see how someone could be expected to work until their mid-80s.

Royal London Director of Policy Steve Webb said: "Getting millions more people saving through automatic enrolment is a huge step forward, but many face a cruel disappointment if they think that current minimum contribution levels will deliver them the sort of retirement they are looking for. Without significant increases in contributions, we could be witnessing the death of retirement."

What can we do?

The report then looked at the impact of contributing more than the bare minimum. If you increase the annual contributions to 20% of salary - taking into account the fact that your employer will be making some of these contributions - you could retire on two-thirds of your pre-retirement salary - and at a more traditional retirement age. Those who are happy to retire on half their salary could get by with annual contributions of 11% of pay.

It's always worth checking your employment contract, and working out what your employer will do to help. Some offer the government basic in terms of matching contributions, but others are far more generous, so that the more cash you put into a pension, the more they will add. That makes a 20% total contribution far less of a mountain to climb.

For those who really cannot afford to put so much of their salary away for the future, it's important to do the maths. Start with what you need to live on in retirement, and calculate how much you need to save in order to generate that income.

Bear in mind that a pension is not your only source of income in retirement. You may well have separate savings, a property that you might be happy to downsize, or an inheritance you are expecting in the years leading up to retirement. Take your time to add all of this into the equation - although be careful not to add in any inheritance that you cannot guarantee.

You can then work out just how long you need to be bringing some sort of income in for. If you are looking at working into your 80s, it doesn't have to be the end of the world if you have planned a working life that's not a hardship to maintain later in life. It may be possible, for example, to develop your skills and hobbies so that you can continue working part time in your 70s and 80s - doing what you'd be doing in retirement anyway. Those who enjoy gardening, woodworking and DIY have a ready-made business on their hands, while those who are happy caring for children and grandchildren could consider making a second career out of it.

But what do you think? Will you ever be able to afford to retire? Let us know in the comments.

Dream retirement destinations
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Report reveals the death of retirement

A study by MGM Advantage discovered that Portugal is the 10th most popular dream retirement destination among Brits.

You get the attractions of the sun, a more relaxed way of life, lower living costs and cheaper property. You can also benefit from pension arrangements that mean your pension rises with inflation.

And if you choose to, you can spend your time with the enormous expat population, feeling like you never left.

In the tradition of the Best Exotic Marigold Hotel, there’s a large number of people keen to move to India, partly in order to enjoy a much higher standard of living than they would be able to afford in the UK.

If course it’s important to consider that your state pension will not rise in line with inflation - so will halve in real terms during your retirement.

This part of Europe offers a great combination of some of the lowest living and housing costs on the continent, along with a more forgiving climate than the UK.

For that reason Bosnia and Herzegovina, Bulgaria, Croatia, Romania, Greece and Turkey are a big draw for retirees.

However, state pension provision varies across the region, so you will need to check whether retiring to these locations will mean your pension continues to rise in line with increases in the UK, or will be frozen when you move overseas.

Italy is a country of contrasts, so anyone planing a retirement there needs to think carefully about whether they want to call a bustling city home, or whether they would be happiest in the mountains or by the sea.

Housing tends to cost less than in the UK, and in some regions it's incredibly cheap. Living costs are also lower than in Britain, and your pension will rise in line with increases in the UK.

Canada is a big draw for British expats of all ages. This spectacular country is known for being welcoming to people from all over the world, and in many cases has no language barrier for Brits. The quality of life is high, and the cost of housing lower than in the UK.

However, you will need to factor in the fact that your UK state pension will be frozen on the day you leave, and you will need some health insurance if you want to replicate the sorts of things that are available for free on the NHS.

As with India, the Far East offers an exciting and dramatic change from life in the UK, with much lower costs, which can buy you a higher standard of living (although bear in mind your state pension will be frozen).

You will need to consider the cultural and practical differences associated with the move, but you will have the opportunity to live in one of the most exciting places in the world.

The weather, lifestyle, space, and lower cost of living means that British expats of all ages are keen to move to Australia.

Property can be a bit of a stumbling block in some areas, as prices have gone up so much. The currency is also strong, which has posed some issues for those who receive their income in pounds, and there’s the fact that the UK state pension will be frozen if you move. However, if you can overcome these things, then a new life in the sun awaits.

The US offers much more affordable housing, and in many respects a lower cost of living than in the UK.

It appeals to those who don’t want to live with a language barrier, but want more space, possibly more sun, and an American Dream of their own.

There are some important things to factor in before you move, such as the additional cost of healthcare, and the exchange rate. However, one bonus is that your state pension will rise at the same rate it does in the UK.

France is close to home, and yet offers cheaper accommodation than the UK, a lower cost of living, and in many regions there’s better weather too.

Your pension will rise at the same rate it would in the UK, and at any time friends and family are just a short boat or plane ride away. It’s no wonder France is the second most popular dream destination for retirees.

It will come as little surprise that Spain tops the list - largely because it’s already the most common overseas retirement destination for Brits.

Millions of us have experienced the delights of the sun, sea, and the lower cost of living while we were on holiday in the country, so it’s hardly a shock that so many want to experience it on a full-time basis in retirement.

Huge falls in the price of property has made this a cheap place to buy, and the fact that your state pension will keep pace with rises in the UK means you’ll be able to maintain your standard of living throughout your retirement.


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