The Pension Policy Institute's report*, launched today, which considers the implications of Government policies to extend working lives highlights:
Many people are compelled to leave work before the State Pension Age (SPA) due to circumstances beyond their control such as health problems. (Men and Women's state pension ages are rising to 67 by 2028 and 68 by 2046).
Health problems are one of the main, non-voluntary reasons for people to leave work before SPA. By the time men and women are aged between 60 and 64 around 30% of them have a disability that limits their ability to work. Some will be compelled to leave work altogether.
Age, gender, ethnicity, occupation and location affect the likelihood of having a work limiting disability.
This is more common among older people in lower wealth quintiles and those with lower levels of education;
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Those with a work limiting disability in the North East are less than half as likely to be working than those in the South East;
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Older women who have a work limiting disability are less likely to be in paid work than men;
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Manual workers more likely than those in other occupations to leave work due to health problems, either because the employer cannot offer them suitably alternative employment or because the employee does not feel capable of changing/shifting roles.
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White Collar workers are more likely to report stress related health problems at work rather than physical.
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Ethnicity also plays an important role. In the UK people from particular ethnic minority groups more likely to suffer from health problems than white people. For example, Pakistani men are twice as likely as those in the general population to suffer from heart disease. People from some ethnic minority groups may therefore be more likely to need to leave work at younger ages as a result of their health problems.
On the whole, people who leave work due to health problems (after age 50) are unlikely to re-join the labour market.
Rises to the SPA and changes to the benefit system may result in the many people who have not made sufficient financial provision for their retirement and cannot work longer- having lower incomes in retirement and suffering financially as a result.
Leaving work before SPA can result in lower income both before and after SPA, this is particularly the case for someone with low earnings. PPI's modeling demonstrates that someone who left work at age 60 due to ill health will be £60 a week short of his replacement rate** - compared to a similar person who works until age 67 who will be £30 short.
PPI analysis highlighted that shopping around and purchasing an enhanced annuity could increase private pension income for people with health problems by an average of 19%. For the person leaving work at age 60 due to ill health modeled in the report, purchasing an enhanced annuity could increase the ill person's income.
Partnership's own experience shows that some people who qualify for enhancements for health or lifestyle reason can increase their retirement income by up to 40% - which would further reduce the difference between those who retired early through ill health and those who did not.
Commenting Steve Groves, CEO at Partnership said "This report highlights the stark options facing those who have to retire through ill health before they reach the Standard Pension Age. The many people who have failed to save adequately to fund their retirement will be unlikely to meet the replacement rate necessary to avoid financial hardship in retirement.
There is however some good news. Our experience suggests that the 40% of people who are eligible for an enhanced annuity for reasons of health and lifestyle can increase their retirement income by up to 40% by shopping around for a better annuity. This is an important source of income which people at retirement can no longer chose to ignore. While the Standard Pension Age will increase automatically in time, this places a far greater responsibility on the industry and Government to make those individuals aware of the importance of shopping around."
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