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Hi, I'm Ros Altmann. My blog covers finance, pension, economics, investment and retirement issues. I'm an independent expert, advising Government, pension providers and finance companies and also helping consumers. I'm the UK Government's Older Workers Champion.

Why working longer is the way of the future

People will increasingly realise the benefits of redefining retirement

In the past, retirement was not an active decision – it just happened to you, dictated by your employer, a pension scheme or society:  Traditional UK retirement was not an active choice, but an event that happened, dictated by outside forces rather than being a positive and considered decision.  For example most people automatically stopped work at their pension age or were offered the chance to retire early with a good pension funded by their employer, or believed they must stop when reaching state pension age. Workers were not encouraged to make pro-active decisions about how or when to retire, unless they were in poor health.

Most people retiring now are still fit and healthy – what a waste of resources.  Decisions about how, when – and even whether – to retire can increasingly become the choice of the individual.  The old days of standard lifestyles that shoehorn everyone into the same mould are outdated.  In the 21st Century, retirement no longer needs to be standardised.  As people are living longer and are healthier, they do not need to leave the labour force just because they reach a ‘standard’ pension age. The skills and talents of the over 50s are too often wasted, due to outdated stereotypes of poor health and disability.  Medical advances enable most of us to recover and live well with illnesses which would have disabled previous generations.

The recent pension changes make flexible working in later life easier:  The UK has a tremendous opportunity to revolutionise its retirement and pensions system over the next few years as the restrictions and inflexibilities that have hampered UK pensions are being swept away.  This can transform the way we think about retirement and pensions. This pensions revolution is an important part of the social revolution being driven by issues such as increased longevity, improved health in retirement and economic reality.

Pensions and retirement are out of step with people’s lives:  As the proportion of people’s lives spent working has fallen so much, the failure to move retirement thinking to match developments in health and life expectancy has left many living on much lower incomes for longer than they need to.  In the 1950s, when the current pension system was designed, the average worker would start working at age 15, work for about 50 years and then live for five or 10 years in retirement.  That meant most people would be working for around two thirds of their lifespan (50 years out of 75).  10 years of retirement might follow their 50 years of work.  In other words, each 1 year of retirement was funded by 5 years of work.  Nowadays, people are working for perhaps 45 years and living in retirement for around 23 years, so each 1 year of retirement is funded by less than 2 years of work.

Record numbers already working past pension age:  According to the Office for National Statistics, the number of pensioners in work nearly doubled from 753,000 (7.6% of pensioners) in 1993, to 1.4million (12% of pensioners) in 2011.  Two thirds of older workers are working part-time, the majority with their previous employer.  The longer people can stay economically active, the more chance they have to protect their spending power and increase their future income prospects. Those who work longer will not only have more money immediately, but they will also have more chance to build up savings.  Setting money aside for future income needs, even after age 60, can help meet the challenges of longer periods in retirement.

Survey evidence confirms this is already happening:  MetLife Survey results, from a nationwide Survey of 2000 adults highlight how attitudes are already changing:

  • 71% of workers said they would consider working past state pension age, in order to achieve a higher retirement income
  •  Only 8% of workers said they would not be willing to work on, even if that meant they had to struggle financially
  • Only around 20% of workers believe they are saving enough for retirement.

TABLE 1: Most people expect to be fit enough to work beyond their mid-60s.

Do you think you will be physically fit enough to work in your current job beyond your mid-60s?

   

Age 60+ Age 50-59
Yes 76% 60%
No 10% 17%
Don’t know 14% 23%

TABLE 2:  The majority of people will consider working longer, particularly part-time, in order to achieve a much higher retirement income

Would you consider working longer to have much higher retirement income?

 Age 60+ Age 50-59

Yes

66% 71%
I would consider working full-time past state pension age to have much higher retirement income 24% 27%
I would consider working part-time past state pension age to have much higher retirement income 42% 42%

TABLE 3: There are other reasons for staying on at work, apart from financial, such as giving a sense of purpose in life and social interaction.

Why would you want to keep working past state pension age?

   

Age 60+ Age 50-59
I can’t afford to retire 32% 44%
I enjoy working and don’t feel ready to retire 47% 21%
Work gives me a sense of purpose in life 34% 29%
I would miss the social interaction of work 20% 31%
I want to save more for my retirement 20% 19%

Working longer brings significant income and capital benefits.  Every extra pay cheque means higher lifetime income, larger potential pension fund and pension savings have to last for fewer years.  Staying at work can also keep people healthier – both physically and mentally.

Many people find retirement disappointing: Retiring while fit and healthy has been disappointing for many, who find they are bored or miss their work colleagues, do not have enough money and little structure to their lives.  Some may have sufficient income to travel the world, participate in their hobbies and do voluntary work without any financial concerns, but they are a minority.  The ideal is to work part-time for a while, before retiring altogether. This would give them a better work-life balance, help provide more income and enable a more gentle transition to full retirement.  The retirement of the future will be one where people cut down work gradually and work part-time before finally stopping altogether.

 

 

3 comments

1 stuart benson { 07.16.14 at 5:46 pm }

Ros I agree with you that more flexible retirement is one of the things that the 21st century will bring. The other, though, is more flexible working lives. The current model for today’s children has years of study, maybe a gap year (or, today, unemployment!), followed by 50, even 60 years of working then retirement. Not only will the retirement end become flexible but people will increasingly find a continuous working life of that length untenable and undesirable and many will be looking for sabbaticals and career changes. This is important from a savings perspective because it means that, for many people, flexible savings to fund breaks and career changes become as important as “locked-in” pension savings. Over the long term, for many people, retirement might even become shorter again, and the key time for leisure might be much earlier in life. This will add even more emphasis to the need to save flexibly.

2 stuart benson { 07.18.14 at 2:17 pm }

Glad you implicitly picked this up in your latest blog about gap years and career changes for older people! Feel free to acknowledge the source of your inspiration if you want to ;-)

3 Frank { 07.26.14 at 8:00 am }

Few employment agencies/consultancies or employers even consider, seriously, people over 50. So realistically the only way most people can work again after the age of 50+ is to work for themselves. Whilst in many parts of the public sector it is quite acceptable for many of their staff to retire at 55 on a good pension, it is difficult then to promote working until 70 and beyond. Surely economics dictates that someone who studies until they are 21+ then retire @ 55 and lives until 80 is unsustainable. Paying taxes for 34 years but receiving support from the state for 46 years who funds the difference?

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