Want a 'gold standard' retirement? You'll have to work until you're 78

New research by Royal London debunks the myth of 'flexible' retirement, which is the concept of people steadily lowering their working hours and topping up their reduced wage with various pensions until they stop work completely.

The report states that while workplace pension scheme membership has risen through automatic enrolment, which now encompasses nearly 7.2 million workers, average contribution rates have fallen.

The mandatory contribution rates under automatic enrolment are just 1 per cent of a band of 'qualifying earnings' for employees and 1 per cent for employers. Even when the scheme is fully implemented in April 2019, the combined contribution will be just 8 per cent of qualifying earnings.

Royal London states the assumption that people do not defer their state pension but instead take a pension as soon as they can and reduce their working hours - so-called 'flexible retirement' - is misguided.


The millions who are now saving at the automatic enrolment minimum rate would have to keep going into their late 70s or even 80s before they could afford to stop working and retire flexibly.

Royal London's analysis found that those who are targeting a 'gold standard' retirement (replacing two thirds of their pre-retirement income) will have to work on for an additional five to seven years compared with a person who keeps going full time and defers taking a state pension.

A person who wants a gold standard retirement with a pension protected against inflation and provision for a widow or widower will need to work until they are 85, states the report.

This compares with a retirement age of 78 for someone who is willing and able to continue working full-time and deferring their state pension through and beyond pension age.

Those targeting a 'silver standard' retirement (replacing half of their pre-retirement income), switching to part-time work at state pension age means their working life is also extended by between five and six years for those who want to be able to afford a pension which is protected against inflation.

The 'antidote' to having to work to these extreme ages is to put more into the pension in the first place, states the report.

Compared with the person who only contributes at the legal minimum of 8 per cent, they found that someone who contributes 10 per cent of qualifying earnings can retire around three years earlier, meanwhile someone who contributes 12 per cent of qualifying earnings can retire up to six years earlier.

Steve Webb, former pension minister and director of policy at Royal London, argues that as a rough rule of thumb, each extra 1 per cent on the pension contribution rate enables people to retire at least one year earlier.

'I hope this means that it's not pure doom and gloom but shows that relatively modest changes in savings behaviour can have a material effect.'

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