Hard-up retirement savers could work into their 70s to top up their pensions because they are not putting enough cash away while they are working.
Four million mostly younger workers are probably saving too little to fund a comfortable retirement, argues financial firm Royal London.
The firm also claims that spending now and saving less in favour of phasing in retirement is a pipedream for most.
Research in the report The Mirage of Flexible Retirement follows the career of a worker who saves the recommended minimum into a pension over their lifetime, assuming they will retire as soon as they can draw a state pension and work part time to top up their income.
The research considers a ‘gold standard’ pension seeking for a two-thirds final salary income on retirement and ‘silver standard’ workers who will accept a 50% final salary retirement income.
Gold standard expectations
The data showed a ‘gold standard’ retirement would mean working part time until the age of 79 years old, while a ‘silver standard’ retirement would require working until 69.
If the pensions were index-linked, both workers could work into their 80s before they have enough savings to retire.
The research warns that the extreme retirement ages come from saving too little – currently 8% of salary.
Increasing the contributions reduces retirement ages.
Upping the contribution to 10% of salary drops the target age by three years and by six years if the rate is increased to 12%.
“The rule of thumb is even if someone does not start saving until they are in their 30s, increasing the saving rate by 1% knocks a year off retirement age,” says the report.
£4 a week makes a difference
The firm calculates that with an average wage of £27,600 a year, an extra 1% saving is just £4 a week or £208 a year.
“A flexible retirement, where we can gradually reduce our hours and stop work at an acceptable age, is likely to be a mirage for millions of people based on current levels of saving,” said Royal London director of policy Steve Webb.
“Those who opt for a gradual retirement, drawing a state pension as soon as they can and cutting their working hours could easily find themselves unable to afford to retire fully until they are in their late 70s or beyond unless they have built up a significant private pension pot.”
