Why deferring retirement can boost income by two thirds
Pensions patience can pay
- Those approaching age 65 can boost their pension income by two-thirds by deferring their retirement by 5 years
- The number of over 65s in work has doubled* in the last 30 years and half of people expect to work on past state pension age
People considering retiring could add around £46,388 to their pension savings if they delay taking their pension by 5 years according to new research from Aegon. This means a 65 year old could increase their monthly income by £314 from £457 to £771 per month if they defer retirement and keep contributing to their personal or workplace pension until age 70. Those who delay by 3 years to age 68 can build up an extra £25,542 increasing their monthly income by £164.
Aegon research showed that on average, those between ages 55 and 64 contributing to a pension were paying £355 a month and had a fund of £105,496. Based on this, those with a fund of £105,496 at age 65 who keep contributing £355 a month could see a huge boost to their ultimate retirement income:
Age 65: Fund of £105,496 which might produce a monthly income ** for life of £457
Age 68: Fund of £131,038 which might produce a monthly income ** for life of £621 a 35% increase
Age 70: Fund of £151,884 which might produce a monthly income ** for life of £771 a 67% increase
Note: These figures assume 4% investment return after charges. These annuities are based on best rate from Money Advice Service tables on 23 May 2017. All are single life, non-escalating, no guarantee and have no health issues. Annuity income is affected by inflation, which could reduce what you can buy in the future with the amounts shown and how your investment grows and interest rates at the time you buy your annuity.These figures have not been adjusted for inflation.
Changing work patterns, questions over the generosity of the future of the state pension, and the need to supplement retirement income means that people are working longer into ‘traditional’ retirement than before, either because they need to or simply because they want to.
Historically, people retired once they reached state pension age, apart from the lucky few who received generous defined benefit pension schemes and were able to stop working earlier. However, in this new defined contribution landscape when retirement income is closely linked to pension contributions, the way people approach work in later life is changing. In the last 30 years the employment rate for people aged 65 and over has doubled*, from 4.9 to 10.2 per cent as people work on into older age.
These changing work patterns are leading people to embrace the notion of an extended and often more flexible transition from working life into retirement. A quarter of working age people expect to continue working full-time for as long as they are able, and a further quarter expect to work on past state pension age on a part time basis. Just one in ten (12%) will cease work immediately upon reaching state pension age, and fewer than one in ten (9%) will stop working pre-retirement.
The younger working population are particularly comfortable with the idea that work will not end at age 65. Nearly a third (31%) of millennials expect they will work full-time for as long as they are able, 27% will continue working part time and just 3% expect to stop working upon reaching state pension age
Steven Cameron, Pensions Director at Aegon said: “Those of working age today are waking up to the likelihood they’ll not retire at as early an age as their parents, and are no longer picturing state pension age as the defining ‘retirement moment’ at which they automatically leave the workforce. For some, the decision to work on past ‘traditional’ retirement age will be a lifestyle choice, but for others an inadequate pension pot may make it a necessity.
“The positive news or silver lining as some may see it, is that working a few years longer and keeping saving in a pension can dramatically improve retirement incomes. An individual with an average retirement pot making the average level of contributions could see their private or workplace pension income increase by two thirds if they defer retirement for 5 years. This is a result of the triple boost of continued investment growth on the pension fund, further contributions being added and ultimately fewer years to spread the fund over once no longer working.
“For those early on in their working lives, starting saving as soon as possible is key. But we can’t turn back time and those approaching traditional retirement age with less than they might wish for still have choices. For those who are able, continuing to work for a few years more not only keeps a salary coming, it can also produce a substantial uplift in retirement income. Planning a retirement income and when to start taking it requires careful consideration and we recommend speaking with a financial adviser who can offer tailored advice to meet your personal needs and circumstances.”
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Monthly income figures assume individuals but an annuity and are based on the best rate from Money Advice Service tables on 23 May 2017. All annuities are single life, non-escalating, with no guarantee and assume the individual has no health issues.
Research conducted on behalf of Aegon UK by Censuswide. UK representative sample of 2,004 people. Fieldwork was undertaken between 9 and 12 December 2016.
Tel: 0131 549 6743
Notes to Editors
- In the UK, Aegon offers retirement, workplace savings and protection solutions to around two million customers, and employs more than 3,450 staff. More information: https://www.aegon.co.uk
- As an international life insurance, pensions and asset management company based in The Hague, Aegon has businesses in over twenty five markets in the Americas, Europe and Asia. Aegon companies employ over 28,000 people and have millions of customers across the globe. Further information: www.aegon.com
- Aegon is the Lead Partner of British Tennis.
Aegon is a brand name of Scottish Equitable plc. Scottish Equitable plc, registered office: Edinburgh Park, Edinburgh EH12 9SE. Registered in Scotland (No. 144517). Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Financial Services Register number 165548. An Aegon company. www.aegon.co.uk
© 2017 Aegon UK plc