Delay retirement five years to boost pension by £46,000
Those approaching 65 could add around £46,300 to their pension savings if they delay retiring until they reach the age of 70, according to pension provider Aegon.
By contributing to their personal or workplace pension for an extra five years, people could increase their monthly income from £457 to £771
The research suggests people aged between 55 and 64 currently contribute on average £355 a month to their pension pot and end up with a fund worth £105,496.
Based on these figures and assuming 4% return after charges, someone delaying retirement by just three years could build up an extra £25,542, increasing their monthly income by £164 via an annuity. This represents a 35% increase.
Aegon said that 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.
See YourMoney.com’s Plan to work past state pension age? for more information on what this means for your state pension as well on tax and national insurance contributions.
In the last 30 years, the employment rate for people aged 65 and over has doubled from 4.9% to 10.2% as people work on into older age.
And Aegon found that a quarter of working age people expect to continue working full-time for as long as they are able, while a further quarter expect to work 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 appear to be more 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
Substantial uplift in retirement income
Steven Cameron, pensions director at Aegon, said those of working age today 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. 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.”