MILLIONS TO GET PENSION SHOCK
Retirement dreams will be shattered
MILLIONS will be condemned to work into their 80s because they are not saving enough for their retirement.
Dreams of easing themselves into old age by cutting their hours and topping up pay packets with their pension are a mirage, former pensions minister Sir Steve Webb warned last night.
He said about four million people have been wooed into a false sense of security because they have been automatically enrolled into their employers’ pension scheme and save only the minimum eight per cent set by the Government.
But to have any hope of stopping work at normal retiring age they would need to start saving much more into their pension pots, he warned. Sir Steve, now with insurance
giant 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.
“The good news is that there is an antidote to excessive working lives and this is higher rates of pension contributions. We find that each one per cent 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.
“These findings need to be considered carefully by the Government as it reviews the rules around automatic enrolment in 2017.”
Sir Steve’s report, The Mirage of Flexible Retirement, looks at how long someone will have to work if they have only saved into a pension at the legal minimum level and want to draw a state pension as soon as they can and cut down to part-time work. It considers those who are targeting a “gold standard” retirement – a post-work income at two-thirds of pre-retirement levels – or a “silver standard” retirement with a pension worth half their final salary.
Workers targeting a gold standard who retire gradually will have to work until 79 before being able to afford to retire. This compares with retirement at 74 for workers who defer taking a state pension – which increases payouts – and maintain full-time hours until stopping work.
An employee wanting a more modest “silver standard” but who retires gradually would work on until they were 69.
This compares with retirement at 68 for a worker who defers their state pension and continues in full-time work. But those targeting pensions which provide protection against inflation and something for a widow or widower could have to work into their 80s.
Malcolm McLean, of consultants Barnett Waddingham, said: “There is also the question of an individual person’s health and physical capacity to continue working on, either full-time or part-time, into older ages.”
Tony Lyons, of retirement planners The WAY Group, said workers needed to up their savings game.
He added: “Men and women are living far longer these days. Most people in reasonable health by the time they get to 60 can anticipate going on until their late 80s.
“That’s the best part of 30 years in ‘retirement’ or almost as long as many people will have spent in work.”