Aegon research showed that on average, those between ages 55 and 64 contributing to a pension were paying £355 a month and had a fund of £105,496. Based on this, those with a fund of £105,496 at age 65 who keep contributing £355 a month could see a huge boost to their ultimate retirement income:
Age 65: Fund of £105,496 which might produce a monthly income ** for life of £457
Age 68: Fund of £131,038 which might produce a monthly income ** for life of £621 a 35% increase
Age 70: Fund of £151,884 which might produce a monthly income ** for life of £771 a 67% increase
Note: These figures assume 4% investment return after charges. These annuities are based on best rate from Money Advice Service tables on 23 May 2017. All are single life, non-escalating, no guarantee and have no health issues. Annuity income is affected by inflation, which could reduce what you can buy in the future with the amounts shown and how your investment grows and interest rates at the time you buy your annuity. These figures have not been adjusted for inflation.
Changing work patterns, questions over the generosity of the future of the state pension, and the need to supplement retirement income means that people are working longer into ‘traditional’ retirement than before, either because they need to or simply because they want to.
Historically, people retired once they reached state pension age, apart from the lucky few who received generous defined benefit pension schemes and were able to stop working earlier. However, in this new defined contribution landscape when retirement income is closely linked to pension contributions, the way people approach work in later life is changing. In the last 30 years the employment rate for people aged 65 and over has doubled1, from 4.9 to 10.2 per cent as people work on into older age.
These changing work patterns are leading people to embrace the notion of an extended and often more flexible transition from working life into retirement. A quarter of working age people expect to continue working full-time for as long as they are able, and a further quarter expect to work on past state pension age on a part time basis. Just one in ten (12%) will cease work immediately upon reaching state pension age, and fewer than one in ten (9%) will stop working pre-retirement.
The younger working population are particularly comfortable with the idea that work will not end at age 65. Nearly a third (31%) of millennials expect they will work full-time for as long as they are able, 27% will continue working part time and just 3% expect to stop working upon reaching state pension age
Steven Cameron, Pensions Director at Aegon said: “Those of working age today are waking up to the likelihood they’ll not retire at as early an age as their parents, and are no longer picturing state pension age as the defining ‘retirement moment’ at which they automatically leave the workforce. For some, the decision to work on past ‘traditional’ retirement age will be a lifestyle choice, but for others an inadequate pension pot may make it a necessity.
“The positive news or silver lining as some may see it, is that working a few years longer and keeping saving in a pension can dramatically improve retirement incomes. An individual with an average retirement pot making the average level of contributions could see their private or workplace pension income increase by two thirds if they defer retirement for 5 years. This is a result of the triple boost of continued investment growth on the pension fund, further contributions being added and ultimately fewer years to spread the fund over once no longer working.
“For those early on in their working lives, starting saving as soon as possible is key. But we can’t turn back time and those approaching traditional retirement age with less than they might wish for still have choices. For those who are able, continuing to work for a few years more not only keeps a salary coming, it can also produce a substantial uplift in retirement income. Planning a retirement income and when to start taking it requires careful consideration and we recommend speaking with a financial adviser who can offer tailored advice to meet your personal needs and circumstances.”
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