A new report shows the impact on pensions earnings of early retirement.
Older workers on the National Living wage who drop out for just two years will lose out on nearly £26,000 in future pensions income and those on higher wages could miss out on around £60,000, according to new modelling by the Pensions Policy Institute [PPI].
The modelling shows leaving work two years before the planned retirement date may require someone to find around £25,500 in order to meet the target replacement rate to replicate living standard of a person earning £18,500 a year, over that time plus an additional £3,000 to cover pension contributions foregone.
It is part of a new report by the PPI and Age UK and also looks at the impact of people drawing down their defined contribution (DC) private pension funds early just to keep going financially now, thereby reducing the amount available to fund their retirements later on. The PPI paper shows that more DC pension pots are being accessed for the first time than previously, revealing a year-on-year rise of 18% – potentially having a significant impact on people’s retirement savings.
Age UK says the cost of living crisis is forcing some people on the cusp of retirement to keep working and, in some cases beyond it, in order to make ends meet. This impression is backed up by Opinium polling for Age UK, which earlier this year found that around 400,000 people approaching state pension age (9% of those aged 60-65), or another member of their household, had recently had to change their work habits, for example returning to work, working longer than expected or delaying retirement, in order to boost their income.
Age UK is worried that having to wait until 66 for the State Pension is already bringing great hardship and anxiety to many older people who would like to work but who can’t because of ill health, disability or caring responsibilities, particularly at a time when the cost of living is soaring. The charity says they need more financial support so they can keep their heads above water, at a time when prices for most everyday items are rising fast due to inflation.
Age UK is also calling on the Government to seek to reduce economic inactivity among people in their fifties and sixties by developing policies that help those who are able to work into a job. It adds that increasing access to flexible working and to training would make a real difference to these people’s ability to be in employment.
Caroline Abrahams, Charity Director at Age UK, said:“As the cost of living crisis continues to exact a heavy toll, we think the Government needs to provide more generous financial support for people who cannot keep working until they become eligible for their State Pension, as well as increasing access to training and flexible working for those who can, thereby reducing the level of economic inactivity, which is one of their big goals. Policies like these would make a big difference to this age group and help our economy too.”