Working later is not the answer to your pension problems

Plan to stay in work to close the pensions gap? Do you know how long you have to keep working?

Updated: 
Working in your 70s

More than half of people coming up to retirement are considering staying in work, and one in four have already decided they can't afford to stop just yet, according to the Prudential. Increasingly we are looking at what we have saved in our pensions, then looking ahead to the number of years we will have to make it last for, and deciding to stay in work.

However, when we resign ourselves to working longer, we underestimate just how long we will have to keep going.

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See also: 106,000 job-jugglers missing out on auto-enrolment pensions - Citizens Advice


Research from Mutual insurer Royal London warns that you people who plan to make up the gap by working after their traditional retirement age may have to work to the age of 79 in order to make ends meet.

They based their calculations on an average worker, who saves into a pension at the auto-enrolment minimums for the whole of their working life. They decide to draw a state pension as soon as they can, and immediately cut down to part-time work. Even if they don't try to get a retirement income that can keep pace with inflation, or pay their spouse after they die, if they want to retire on two thirds of their working income, they will have to work to 79. If they wanted inflation proofing and protection for a spouse, they would have to work well into their 80s.

Even if they were to continue battling on in a full-time role, and defer their state pension for a few years, they would still have to keep going until the age of 74 before they could afford this kind of comfortable retirement.

Steve Webb, Director of Policy at Royal London said: "A flexible retirement, where we can gradually reduce our hours and stop work at an acceptable age, is likely to be a mirage for millions of people based on current levels of saving. Those who opt for a gradual retirement, drawing a state pension as soon as they can and cutting their working hours could easily find themselves unable to afford to retire fully until they are in their late seventies or beyond unless they have built up a significant private pension pot".

What can be done?

There aren't many people who would embrace the notion of working into their late 70s or their 80s. If they want to retire earlier, then people have two choices. The first is to set their expectations for retirement lower, and target a 'silver standard' retirement of half their pre-retirement income levels (which is hardly generous). They would have to work until the age of 69 (68 if they stayed in full-time work).

Alternatively (and for many people far preferably) they can put aside a little more into their pension as they go along. If they start young enough, very small additional contributions can make a big difference. The basic minimum under auto enrolment is 8%. However, if they contributed 10% instead, they could retire three years earlier. If they contributed 12% they could retire six years earlier.

Webb points out: "There is an antidote to excessive working lives and this is higher rates of pension contributions. We find that each 1% on pension contribution rates takes at least one year off the number of years for which you have to work to achieve a decent retirement. For those who want to have choices in later life about when and how they retire, doing more now to build up a decent pension pot is becoming essential."

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