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Pensions: Retirement dream may be ‘mirage’

Millions of pension savers hoping to gradually phase in their retirement could find themselves working into their late 70s or beyond to achieve the lifestyle enjoyed by previous generations, a report warns.

Sir Steve Webb, a former pensions minister, warned that the dream of a flexible retirement where people gradually go part-time before giving up work entirely when it suits them could turn out to be a “mirage” – if people only contribute minimum amounts to their workplace pension pot.

Sir Steve, who is now director of policy at Royal London, said an average worker wanting a “gold standard” of retirement – where their pension income equates to two-thirds of pre-retirement levels – may have to work until they are 79 before they can afford to fully retire if they are aiming to reduce their working hours gradually.

Someone targeting a more modest “silver standard” of retirement – where their income is around half pre-retirement levels – could have to work until they are 69, Royal London calculated. The scenarios are based on someone only saving into their pension at the legal minimum level, deciding to draw a state pension as soon as they can and immediately cutting down to part-time work by halving their previous hours.

Royal London said some people could be working into their 80s before they achieve a desired income.

Sir Steve 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.” He added: “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 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.”

OLDER AND WISER: Higher pension contributions are said to be the “antidote to excessive working lives”