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Retire or work on?

Figures released by the Office of National Statistics (ONS) in June 2013 show that there are now more than one million over 65s continuing to work and earn after passing their anticipated point of retirement. This is the highest number since the ONS started collating this data in 1971.

There are a number of reasons contributing to this change in working patterns. Whilst we might expect that one of the biggest causes is financial need, many older workers choose to continue working because that is what they enjoy and are comfortable doing. Others see the point of retirement as an opportunity to do something different in the world of work, moving into a new area of employment or venturing into self-employment and business development. The ‘Golden Age’ of retirement may not be so attractive to people who have worked all their lives and who are now feeling the loss of feeling valued and motivated as a worker.

There is little doubt that the demise of the guaranteed company pension scheme has left many workers with far smaller pensions. Pension problems could also be more acute for those who have been self-employed during their working lives, if they haven’t adequately planned for and saved for their own pension pot, while not having access as employees to more generous company pensions.

Additionally, a decade of poor investment returns and the collapse in annuity rates in recent years, has meant that many are retiring with far less in their pension pot than they had hoped. Thanks to increased longevity, any pension pot savings are going to have to fund a longer lifetime period, with the potential expensive cost of care later in life looming and becoming an increasing concern.

By continuing to work, they can either supplement a more meagre pension or simply delay buying an annuity. If they can delay taking money from their pension fund, this should produce a bigger pension income further down the line.

Much has been written about the “pensions gap” and the fact that those in their 30s, 40s and 50s today will have far smaller pensions but can expect to live longer. Many will therefore be forced to work longer, thanks to the gradually increasing state pension age.

For those now beginning to wonder how they are going to save enough for a pension pot to fund a decent standard of living in retirement, working later may be a more realistic way to plan to plug the gap, rather than just trying to save more now in these difficult economic times.

The tax advantages of saving for the pension pot should not be dismissed but backed up with the expectation that at the anticipated point of retirement there may also be a gradual transition from full-time work, to part-time work, delaying full-time retirement. With better health, longer life expectancy and a “younger” outlook, many of today’s 60 and 70-year olds just don’t feel they are ready for anything but a more active life, which includes paid work.