More people aged 50-74 in work than ever before
New figures by the Department for Work and Pensions show there are now more people aged 50-74 in work than ever before.
The number of people in this age range that are in employment now stands at 9.4 million, which is 3.7 million more than there were 20 years ago.
The figures also show the unemployment rate for people aged over 50 has dropped to 3.3%, the lowest level since 2009. Further, there are over 1.1 million people working beyond age 65. Many will be delaying retirement in order to pay off their mortgage. Read our piece on mortgage options for older people.
Commenting on the figures employment minister Damian Hinds says: “It is clear that people over 50 aren't slowing down or getting ready for retirement. I want to see businesses supporting this momentum while also reaping the benefits of the skills and expertise these older people can bring to the workplace.”
Insufficient retirement income
The government has already abolished the default retirement age, and extended the right to request flexible working to all employees. This means that older workers now have more choice about how and when they retire, argues Hinds.
Steven Cameron, pensions director at Aegon, says: “Keeping socially active is often cited as a key motive for people choosing to stay in employment.
“But another key reason we now have a record number of 65-year-olds still in the workplace is that many face a growing need to supplement insufficient retirement income.
“We know that a third of people in the UK worry that financial pressures will mean they won't be able to retire at their target age of 64, and that the overwhelming majority of these expect to continue working, be that in the same job, by becoming self-employed, or in many cases finding a new role altogether.
“The sands of retirement are shifting, but people can take steps to ensure working in retirement is a choice, not a necessity.
“Naturally, starting to save earlier in life is the ideal way to build a retirement pot that will go the distance, but for those that haven't, it's never too late to start putting money away.”
Annuities game changer
Claire Trott, head of pensions technical at Talbot and Muir, points out that this is a twofold issue. Many people are healthier than they would have been at the same age 20 years ago, which is why they are able to work longer.
But on the flip side it is likely that some have been forced to work longer due to changes in pensions, says Trott. Fewer people will have a good final salary pension to rely on, while more will have to rely on pensions that are subject to fluctuation in the stock markets.
The reduction in annuity rates over the last 20 years has also been a game changer. When annuity rates peaked in 1990 a healthy 65-year-old with £100,000 received £15,000 a year, but today will pocket less than £5,000.
“This all leads to the option of working longer to get a better rate and an increased fund or retiring on a lower amount which may mean they would still need to work part time to survive,” adds Trott.
Andrew Pennie, head of pathways at Intelligent Pensions, comments: “The need for people to work longer could have serious impacts on employers.
“How long will people work for? Will they still be able to perform the same role effectively? Will increasing and more serious health issues impact productivity and costs?
“Unfortunately, most employees don't find out they haven't enough money to retire until it's too late and therefore staying in work is often the only course of action to avoid financial hardship.
“Forward thinking employers will need to consider how they can engage with their employees much earlier and help them to get on the right path towards retirement, allowing both employer and employee to plan more effectively for the future.”
This story was originally written for our sister magazine, Money Observer.
Final salary pension
A defined benefit pension scheme is one where the payout is based on contributions made and the length of service of the employee. A typical scheme would offer to pay one-60th (0.0168%) of final salary (the one you’re earning when you finally retire) for each year of contributions to the scheme (even though these years were probably paid at a lower salary). Someone retiring on a final salary of £30,000 who had been a member of the scheme for 25 years would receive a pension of 42% of their final salary (£12,300 a year before tax). Sadly, many companies are winding up their final salary schemes or closing them altogether, meaning pension benefits accrued after a certain date (or those available to new employees) may be on a less generous money purchase basis.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.