2017 sees record numbers of over 55s able to access pension cash
42% forced to step back from work earlier than planned
Redundancy and poor health main reasons for leaving full-time work early
More than half of over-65s said it impacted on their income level in retirement
Rising State Pension Age to magnify problem
This year, more people in the UK than ever before will reach their 55th birthdays1 – the age at which they have the right to start to accessing lump sums from pension savings. But taking pension money too early is likely to impact on their retirement income if they are among the four in 10 whose full-time working lives are cut short by circumstances beyond their control.
Stephen Lowe, group communications director at Just, said that easier access to pension money is welcomed to help people dealing with longer lives and changing lifestyles but he said it was a useful “tool” to deploy when the circumstances are right.
“It’s important to have some flexibility because it enables those who have to step back from working earlier than they had planned to fill the gap before State Pension kicks in,” he said.
“We know from our own research that around 42% of those now aged over 65 were forced to retire or go part-time earlier than they had expected and more than half said this impacted on their retirement income.
“The number was higher among the more recently retired and the financial consequences are likely to be magnified as people now have the option of getting at their cash earlier, but may have to wait longer to claim the State Pension.
“Our advice to anyone tempted to take lump sums early is ‘mind the gap!’ to ensure any funds you take early don’t impoverish your future self if you are among the many whose working life is cut short.”
The most common reasons for stepping back from work were illness, redundancy, being physically unable to keep on doing the job, an employer enforcing a change of role, and needing to step back from work to provide care for a family member, the reason given by one in five women.
More than half of those forced to retire, particularly men, said it had an impact on their income in retirement. 13% said it cut their income by more than 20p for every pound of retirement income they were expecting, 8% said they lost between 10p and 20p and 7% by up to 10p.
Others reported effects such as having to rely on a partner’s pension more than they wanted to, increasing their investment risk, or tapping into non-pension assets for income or to pay the mortgage.
Stephen Lowe said he said he believes the stakes are higher now partly because record numbers are reaching age 55 this year – nearly 900,000 compared to fewer than 600,000 in 1990 – and also because there is a risk some people may mistake the right to take pension cash lump sums as government endorsement that it is a good idea.
“Saving enough to provide a decent income in retirement is not easy but, in general, the more you put in the pension and the longer it is invested, the better the outcome is likely to be,” he said.
While the pensions industry supports “freedom” rules, they have introduced a higher level of complexity to decisions around how best to use pension money, reinforcing the need for people to take guidance or professional advice.
“There are more options but also a lot more responsibility on people to make their own decisions and less of a safety net in place if they turn out to be poor ones,” he said.
“Criticism of pension freedom is less about the rules and more about the lack of support to help people navigate those rules.
“Fortunately, free and impartial guidance is available from Pension Wise to all those aged over 50 and thinking about taking pension money to help them understand the opportunities and threats. Guidance is highly rated by those who use it, but not enough are – take-up should be strongly encouraged by making it the default option so that people have to opt out rather than opting in.”
Figure 3 shows mid-year population estimates for 2015 and if you look at 53 year olds - the ones turning 55 in 2017 - there's about 450,000 males and same number of females.
The graph nicely shows the bulge so for the next few years record numbers will reach age 55 before tailing off for a few years. It also shows the spike of older people born just after the war.
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