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Will our children work until they’re 75?

Every year, more and more people in the UK are working past the state retirement age. So I started thinking, should there be a prescribed age, or should people get to choose exactly when they retire?

A recent report from the Office for National Statistics (ONS) found that the number of people working after state pension age has gone up from 753,000 in 1993 to 1.4m in 2011. This means an average 12% of people who currently work fall into that category (14.1% in London and the South East, 8.2% in the North East).

Two-thirds of these post-retirement-age workers are employed in part-time jobs, but the fact remains that they’re continuing to toil beyond the point where they could legitimately put their feet up and take a well-earned break.

The ONS speculates that improved health and well-being might lay behind the increased number, combined with a desire for older workers to ‘remain active in society’. However, it also acknowledges that ‘financial pressures’ may play a part too.

Can one size fit all?

We’ve talked about this topic before when the government accelerated the rise in state pension age for women and brought it forward for men. I wondered if one size really did fit all, or if it might be better to let people decide for themselves when they’re ready to call it a day?

My colleague Martyn Saville had a different take on retiring later, arguing that people who stayed working later prevented those at the other end of the job ladder from getting on the first rung. ‘Repellent’ and ‘morally indefensible’ were a few of the comments he received on his post, although others seemed to think he might have a point.

Personally, I rather like the idea of a choice. If part-time work after retirement age could make the shock of stopping work less abrupt, perhaps we should encourage employers to make part-time work available earlier for those who want to ease off.

Retirement ages on the up

We should also bear in mind that the minimum pension age is increasing anyway, so rather than discussing the choices of those aged 60 or 65, we’re increasingly thinking about those aged 66, 67 or 68.

At a conference the other day, I heard a speaker (seriously) suggest that today’s children might need to keep working until they are 75 or older simply to save up enough pension to retire. Is this the harsh reality that underpins this whole debate? I may want to retire early – but can I really afford to?

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One of the reasons why people cannot afford to retire is their lifestyle.

I’m not trying to put tradesmen out of business but many people pay for jobs to be done when they could do the work themselves. Over the years, that could save a fortune.

A fancy car or expensive house might impress your friends and massage your ego, but having to work longer to pay for this and other expensive purchases and their upkeep not be be the best decision.

Apart from making it more difficult for younger people to get jobs, I am happy for people to work as long as they wish to, but it’s sad when this is a necessity brought about by an extravagant lifestyle. Many enjoy work because it gives a purpose in life. Working for a charity can do the same, if you don’t need the money, and makes paid jobs available for younger people.

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Wavechange – One of the main reasons why people cannot afford to retire is because they do not get a large enough pension in the first place to live. They live BELOW the poverty line. The majority of the people in my OAP club are in that position. They never earned enough when working full time to afford the greater contributions required for a private pension. Nor do they wish to be regarded as scroungers or beggars – as so many people seem to regard pensioners as now. Their lifestyle consists of watching TV – going shopping – and going to the OAP Club (especially during the winter to save heating) for a cup of tea and a free sandwich. Also may I point out vast numbers of OAPs are unable to do household repairs for health reasons – not to mention it requires some skill.and knowledge to do the repair properly – I can – but an enormous number can’t which is why I help them. In no way do they live “an extravagant lifestyle” .They survive – just.

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I agree with you Richard. I am also very impressed what you have done and continue to achieve.

Clearly there are people who have been unwell for years or there is some other genuine reason (e.g. long-term caring for dependants) why they are in financial difficulty, but many more people could and should have made financial provision for their retirement.

I know several people who are now struggling because of an extravagant lifestyle. One couple used to waste money by frequently moving house, having the car valeted, etc. Another ran up all sorts of debts and eventually went bankrupt, leaving many unpaid bills, including money owed to local tradesmen. In both cases they were otherwise sensible people. It is well known that many are living beyond their means and not even trying to save.

I think we both have valid points.

Malcolm Kenward says:
22 June 2012

Both my (elder) brother and my (younger) wife sent forms to The Pension Service stating they were deferring their state pensions. And both subsequently received PAYE Coding Notices which on the reverse under Notes 3, stated “We know you receive the state pension or another taxable state benefit and we have estimated you will receive £nnnn this year.” It goes on that because it’s not taxed at source they (HMRC) have to obtain the tax due.
In my wife’s case, they calculated that she owed tax from 2011-2012 and they gave her a tax code to recover the amount owed as well tax on the pension for 2012-2013. She phoned HMRC and the problem was apparently resolved; she got a revised code for 2012-2013. However, on her first pay slip afterwards, her employer had used the incorrect Tax Code; on enquiring they stated they hadn’t received the revised code from HMRC. Another phone call to HMRC to chase this up. The next pay slip still used the incorrect tax code; again her employer hadn’t received the new code from HMRC. So she is now owed probably about £800 in overpaid tax, give or take.
It is clear there is no communication between the two government departments involved. It seems they automatically assume you’re taking your pension and rely on you to contest the fact.
Yet another example of inefficient government bureaucracy, which we are all paying for.
I’ll let you know if her next payslip has the correct tax code!

GeoffD says:
22 June 2012

I deferred my state pension as I was getting sufficient with my employment pension and returns from a hobby of about £3000 a year. After 18 months, I thought from articles I read that I wasn’t gaining anything by deferring. However, after a good year giving me another £1000, this raised me just above the lowest tax limit that we pensioners are allowed (I forget what they call the figure). Income tax was applied disproportionately, which gobbled up most of the extra cash I’d earned. It therefore seems I would have gained by continuing deferment, and note from this Which? report that I can get a second chance to defer, which I was not aware of before.

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Which? articles seems to suggest that deferring your state retirement to receive an increased pension at a later date is a good idea if don’t need the pension immediately, but what is the break-even point on this? If I don’t take the pension now I am losing the income from the pension and any interest I could have earned on that income. Can someone clever than me calculate how long I would have to live for that lost pension income and interest on that income to be made up by the additional pension I will receive at whatever point in the future I take the enhanced pension? If I’m in profit 5 years after taking the enhanced pension that sounds like a good deal, if it takes 10 or 15 years to recoup the income from pension payments I have foregone it doesn’t sound so attractive. My guess is that the break-even point will come out somewhere close to average life expectancy.

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My wife deferred hers for 4 years, now regrets it because annual increases have been significantly lower on the deferred element of her pension that the basic element. Had we known that when we did the sums, before making the decision, she wouldn’t have deferred. We feel thoroughly ripped off.

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The Which? article states “The pension you receive is based on the current rate, so includes any increase that has occurred during the time you have not been claiming.” That seems to contradict … Can someone clarify thsi?

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I agree it would be helpful to work out the “break-even” point as if state pension combined with any work pension comes to a higher amount than the tax office approve, they will take some! Exactly what these amounts are, I should like to know, although it may be that they have to be recalculated annually due to changes each financial year… some-one cleverer than me needs to help here! My own experience is that I worked part-time from 61 – 63 and didn’t take my pension during that time. Consequently my state pension is now £157 a week which is considerably more than the basic amount. I too, am puzzled by Aitch’s comments regarding his wife’s pension because although I have only had my pension for less than a year, it seems to have increased as a whole, not just on the basic element. Maybe his wife’s is wrong? Maybe it’s mine – please don’t tell them! I didn’t take a lump sum as one of my sons is a financial adviser and told me firmly “Mum, if I thought you would save it, I’d say , take it, but you won’t, you’ll spend it, so take the extra amount weekly”. In response to the first part of the Which? article, I worked until 63 because I needed the money (having brought up two boys on my own with no contribution from the other parent). I don’t have a fancy house and there is no car , so, please, Wavechange, don’t make assumptions. I have a small semi-detached in suburbia and if I hadn’t made some attempt to increase the pension I should have had to sell it and move elsewhere. This was not a happy prospect as my house is the family home at which everyone congregates for Christmas. I don’t believe I should be expected to give that up as gatherings such as this are events us oldies look forward to and make life worth living!

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Err – I wanted to retire as fast as possible – I wanted to enjoy a large portion of my life in peace and tranquillity pursuing anything I wanted to do – whether new things or old joyful past times. – I wanted to be FIT and affluent enough to ENJOY that retirement – I wanted that period of time to be as long as possible.. So I bought my home (note the term) not as an investment but a place to enjoy.

So I retired – nearly 20 YEARS ago now. I am still fairly fit I walk my dogs around 8 miles a day and do all my own DIY (as well as for others) , I chose my final job 50 years ago to get a good secure pension and to have vast job satisfaction coupled to contributing to the overall social good – and expected my state pension that I paid for to supplement that.

I do not need “holidays” as such – as during my time as a Research scientist in Rocket and Jet Guidance Systems – plus a few other jobs – I travelled all over the world (except China) – I then decided to contribute to the social good by Teaching in a very slum area in a very slum school – as a continuation of the social contribution I made running various youth activities. I found very early on I had empathy with poor and socially deprived children – could control them and could contribute to their education and social progress -.I used to teach handicrafts maths science photography and computing in a very slum east London School and used my skill to enhance their chances. Many of these children had criminal records that I had the satisfaction of helping them to overcome and gain worthwhile degrees.

I have a nine roomed house – a large very well equipped workshop to make things – either for me or my friends – I now help run an OAP club – still teaching (without pay) similar subjects as I taught in school as well as helping the very disadvantaged pensioners overcome the difficulties that this appalling government has imposed – Because a great many now feel they are begging and wasters simply because they never had the opportunity and/or ability to overcome their social disadvantages. I feel THEY are ripped off. In addition I help run a dog adoption kennels as there are 1000s of dogs wanting good homes – It is very rewarding to see the dogs come to visit our kennels happy and fit – Rather like the children that used to visit me after gaining an important qualification.

I ENJOY LIFE – My initial ambition was always to be HAPPY – and HELP People – I have succeeded. My only sadness my wife died years ago and my son lives too far away to make visits frequent.

But I fear that a vast number of people are now very jealous from the attitudes of those who seem to want to “kill off” pensioners as soon as possible to grab what the pensioner worked hard to gain. I am VERY disappointed with this “government”

Mike P says:
22 June 2012

You have to bear in mind that the uplift for deferring your state pension is calculated using simple interest, not compound. So if your pension would have been £100, delaying it 12 months makes it 10.5% more, or £110.5 – for many people a decent return. But if you defer another year you get another £10.5, which is only 9.5% more than you could have had at the start of the year. Defer a third year and the uplift is only 8.7%. And so on. So don’t defer too long (unless you live in Australia, but that’s another story).

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Is it worth deferring state pension? To some extent this depends on your state of health and how long you expect to be drawing state pension at the enhanced rate.

The current rate (2012-13) is £107.45 per week, £5587 a year.

The increase you get on the rate for one year’s deferral is 10.4% x £107.45 = £11.17 per week, £581 a year.

To calculate the break-even period, divide £5587 by £581 = 9.616

So you would have to live longer than 9.6 years to make the deal worthwhile.

Average life expectancy at 65 for men is now 83, for women is 85.6, so men live 18 years after state pension age, women around 25, so, all things being equal you can expect to get your money back and then make a tidy profit.

The lump sum option is less certain.

You get an extra 2% above Bank of England Base rate (currently 0.5%), so a total of 2.5% but with no allowance for inflation. A comparison with fixed rate savings accounts or cash Isas shows that this isn’t particularly attractive. You might do better to draw the pension and invest it yourself.

Shepton says:
25 June 2012

The comment is misleading – as I understand it your pension entitlement increases by 1% for every 5 weeks deferral – delay by 6 months and your pension will be approximately 105% of the initial amount.
It is not interest.

Mike P says:
25 June 2012

Yes it increases by 1% every 5 weeks – 1% of the original entitlement at pension age, not 1% of the entitlement at the start of the 5 week period. So you get compensated 1% for deferring the first 5 weeks. At that point you could collect £101 rather than £100. Wait another 5 weeks and you could collect £102, that’s compensation of 0.99% of the £101 you could have had at the start of the 5 week period. And so on. In other words, looking at it in purely financial terms, the attractiveness of deferring another 5 weeks diminishes rapidly over time.

PabFormby says:
3 July 2012

I retired at 59 with a private pension that I thought was adequate but have not had an increase since, so the time is coming when I will need extra money. I have deferred my state pension (I am now 68) on the basis that I will manage for as long as possible on my existing pension. I calculated a break-even point and it came out that one needs to survive for at least 10 years after commencing to take the deferred state pension in order to make a profit! So decide when you are going to die and take the pension 10+ years before! However my reasoning is a little different. By deferring as long as possible I will get the maximum possible pension when I eventually need it and if I die before the 10 years are up my problems are over anyway.

Caroline says:
5 July 2012

I think it is awful raising the age of when you can leave work. I know why they are doing this because of the majority of people living longer, but what about the others who don’t get to live out their life. I am in my 40s and have always thought how important it is to enjoy retirement whilst hopefully you may still have your health and sad if you were widowed sooner in life when you thought you would be sharer it with your partner together. I agree with everything Richard has said in his email and that is how it should be when you have given much of your life to working. I got arthritis 5 years ago, I realise what it is like to suffer and not have quality of life, having to see how you will be on the day before committing to those fun occasions. Thankfully I am on good mediation now and my health is great, but has made me realise even more so how awful the way this government s going with raising the age for retiring. I think those who are that age should have the choice if they wish to continue to work or not, they have given much to society, don’t rob them of their time left if they want to retire. By those retiring earlier means more jobs for young people, the government seems to be forgetting about how important that is.

On a separate note, the NHS has made changes to their pension and does not correspond to this things you speak about in this attachment. It asks you to pay more money in to your pension and extend it on so you are also working longer, you do have choice to not go with that option, but means your pension will be less. ‘Which’ if you get the chance please do take a look, it really is not good.

JamesB says:
6 November 2012

Is it too late to comment on this?… PabFormby was surely correct in writing “if I die before the 10 years are up my problems are over anyway.” The ‘break even’ point is not important unless your legacy is a prime consideration or you’ve made your life a misery by not claiming the pension when you really needed it and the point where you might justify your discomfort by breaking even seems a long way off.

However, it must be assumed that you have considerable savings and/or another source of income, otherwise you’d wouldn’t be considering this as you’d have no alternative but to take the pension ASAP. So on that basis would it make sense to defer? I was just running through the figures for my own situation, based on an anticipiated state pension of £6188pa and defering for two years. The way I’m looking at it, which seems different to everyone else’s so possibly based on a lapse of reason, is…

If I spent £6188 of my savings each year [OK a bit more in the second year but I’m going to ignore that] I wouldn’t notice not receiving my pension, well, as long as I didn’t look at the savings passbook. After two years my reduced savings would bring in £371pa less, assuming an interest rate of 3%*. However my pension would be £1287 more, so I would be I’d be £916pa better off. I think I’m already convinced, but what makes it even better value is that the increased pension will keep up with inflation, give or take, whereas if I were relying on the income from savings instead, those savings would be dwindling away in real terms value. If, and it’s a huge if, I were to live for forty years after retirement, the missing income from the £12k I spent would by then be barely noticed but my enhanced pension would still be worth 20% more than the basic pension would have been. Just think back to how much further the pound in your pocket went forty years ago, when 2p would buy you a Mars Bar. It strikes me that reducing my savings as far as possible without reaching the point where I’d be worrying about not having enough in reserve to cope with the unexpected, allowing for inflation eroding their value before I died, has to be the best bet. Especially as my income would be so much more that those unexpected emergencies might seem less daunting anyway.

It’s hard to get past the apparent problem that though I might have a little more income, I have a lot less savings, but if the savings are only there to provide income – as is the case for me – and you have more income by spending them then it makes sense.

* If savings rates were higher the sums wouldn’t look so good but inflation would presumably be higher too so your savings – I’m still assuming the choice is spend savings or take the basic pension – will erode more quickly too, so I think the argument stands, just skewed to be more convincing the longer the timescale, if less so in the short term.

The decision will be complicated for others by considerations of a partner or perhaps children, their health, and questions of moving into a higher tax band, but in my case there’s no-one to account to and the 40% rate is a distant dream even before retirement, and I doubt hitting the 20% rate would alter my conclusions. At present it looks a no-brainer, but I’m just idling away an empty hour and it’s ages til I have to decide. I was looking at a six year old discussion on this topic and the calculations come to different conclusions to today’s, being based on a base rate of 5% and savings earning up to 11% [!] they were recommending the lump sum alternative, so I guess there’s no point planning too far ahead.

And yes, I didn’t allow for the interest I’d lose in the years I was spending my savings rather than taking a pension but that would be recouped in the first six months of enhanced pension in my two year example.

I see that defering the assumed future £140 pension for 5 years would bump it up to over £11,000pa. Hmmm….

Any thoughts?

JamesB says:
7 November 2012

Hmmm… Just realised that this is too complicated for my tiny brain. I argued that, roughly speaking, spending/giving up 12k would give me 1k pa more income and that would be a good deal. What I failed to consider is that if I’m happy to spend 12k then why not spend it a bit at a time, so I could spend £916 pa, but from savings rather than income, for 13.5 years before being worse off. Unless I’ve missed something else, that’s longer than Ian Robinson’s 9.6 years break even point because he didn’t allow for the extra income you’d earn from having banked your pension; I assume if you’ve defered taking it you didn’t need it and haven’t spent it. I’m just confused now, but can see why the general recommendation for men is no more than a couple of years. How different inflation, interest and tax rates skew the equation is so far beyond me I haven’t a clue as to which way to go – so much for the ‘no-brainer’ I initially thought this was! I guess your personal view of saving and spending would make a difference – you might dread eating into your savings yet be happy to spend all your income. My gut feeling is now that it is only really worthwhile if you expect to live for a long, long time after retiring – and I thought I was on to a good thing.

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JamesB and PabFormby have analysed it pretty well, for those who dont need their state pension yet. Also the answer to the question what age will you be to start making the extra money is around 79-80, whether you defer payment for 1, 2, 3, 4, 5 years. Look at the State Pensions Guide chapter on this to see this feature. If you dont think you will make it to 79, dont postpone it. If you are a clever investor who has good ideas to boost their savings and investments above the current miserable average 2% (approx), then think about it carefully. There are other personal individual considerations that advance or r****d the 79 age point. By the time you are 90 you should be in good credit and laughing, assuming you can still get out of bed each day. Of course the extra money then may help pay your nursing home fees too, or delay the need to sell your home. I am sorry if that sounds depressing! I am an optimist in reasonable health. I am currently 67 and chancing postponement for 4 years to age 69, eating wisely and keeping fit, and aiming to cast off around 95!