The aim of flexible or gradual retirement is no more than “a mirage for millions” at current saving levels, according to Royal London director of policy Steve Webb – although he did flag up “an antidote to excessive working lives” in the shape of higher pension contributions.
The former pensions minister was discussing the Royal London report The ‘mirage’ of flexible retirement, which suggested many of those who plan to retire ‘flexibly’ – reducing their working hours in later life and topping up with pension income – could have to work on into their late seventies or later to achieve a decent standard of living in retirement.
According to Webb (pictured), nearly four million workers – many in their 20s and 30s – are only saving at the minimum rates set by the government and so “cannot hope to ease their way gently into retirement in later life”.
However, he added: “The good news is 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.”
Royal London’s research examined what would happen if someone who has only saved into a pension at the legal minimum levels decides to draw a state pension as soon as they can and immediately cuts down to part-time work.
It considered those who are targeting a ‘gold standard’ retirement (where income at retirement is two-thirds of pre-retirement levels) or a ‘silver standard’ retirement (where income at retirement is half of pre-retirement levels).
For those who want a pension that merely provides a flat income with no protection against inflation and no support for a widow or widower, the research found a worker targeting the ‘gold standard’ retirement who retires gradually will have to work until they are 79 before they can afford to retire completely.
This compares with retirement at 74 for a worker who defers taking a state pension and maintains full-time hours until they stop working.
Meanwhile a worker targeting the more modest ‘silver standard’ retirement but who retires gradually would have to 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.
The research also concluded those targeting a pension that provides protection against inflation and something for a widow or widower could still be working into their 80s before they have enough money to afford to retire.