It is something to be celebrated that as a population we are not only living longer, we are enjoying better health in our later years. This means that many of us could consider working for longer.
But will we do this through choice – or because we can’t afford not to?
According to figures from the Department for Work and Pensions (DWP) Economic labour market statistics, employment has increased across all groups of older workers, with those aged over 65 more than doubling in the last 25 years. There are currently 1.23 million people aged 65 and over in employment, with nearly half a million women and 733,000 men.
It is easier to work in our later years than it used to be. Up until 2011, an employer could terminate employment on the grounds of age. Many would make the gold watch and handshake compulsory at 65 and forced retirement at 60 was not unknown. Discrimination on grounds of age is now illegal, making it easier for people of retirement age to simply carry on in a job they love.
If you’ve worked 40 years, it’s a big change to suddenly stop. Many people prefer to ease back gradually, getting used to the idea of retirement. But it may not always be because we are dedicated to our work and want to enjoy the challenges and camaraderie of the workplace. For some of us, it is because we can’t afford to retire.
Why is it getting harder to retire?
There seem to be several reasons why retirement seems to be becoming more difficult to arrange.
One reason is that the generous final salary pensions that enabled early retirement for previous generations are now few and far between.
Another may be increased divorce rates. Rising divorce rates may lead to a lack of stability provided by a spouse’s pension. If they have taken time off work to have a family, their own pensions may be inadequate, and remaining in the workplace is the only option. Changes to State Pension Age is another factor behind people staying in work longer.
Whatever the reasons getting a decent standard of living in retirement now depends much more on the amount we put into our savings pot. Working a few extra years could mean extra time to contribute, and more time for the contents to grow.
What about the State pension?
The state pension may not be enough for most of us to retire on, but it can be part of your retirement planning. It could be another factor making it worthwhile working past pension age.
The new flat rate state pension, which took effect from 6 April 2016, is currently £164.35 per week. Not everyone will get this much; it will depend on your National Insurance Contributions (NI). It may be necessary, if you have gaps in your NI record, to work for longer to get the full amount.
If you want to continue to work past state retirement age, you are still entitled to claim your pension – but you could also decide to defer claiming. Your State Pension will increase by the equivalent of 1% for every 9 weeks you defer. This works out as 5.8% for every full year.
This could be a good idea for higher rate tax payers who want to work. Taking your state pension while earning could simply mean paying more in tax. It may make much more sense to defer, and enjoy higher payment in a few years’ time.
What should you do?
Whether you like the idea of working past state retirement age or not, it makes sense to give yourself the choice. Starting a private pension, to run alongside your state and employers pension could be a very good idea for most people.
At Continuum we would be pleased to help you look at your pension plans.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
The value of your pensions and investments, and the income they produce, can fall as well as rise and you may get back less than you invested.
Levels and basis of reliefs from taxation are subject to change and depend upon your personal circumstances.
assets.publishing.service.gov.uk – Economic labour market status of individuals aged 50 and over, trends over time: October 2018 – 11th October 2018
gov.uk – Delay (defer) your State Pension