A new study shows how much retirement plans have been disrupted due to the cost of living crisis and warns more difficult decisions are likely in 2023.
One in 10 older workers are planning to work part-time in retirement and a similar number plan to retire later than anticipated because of the cost of living crisis, while three per cent say they will return to work after retiring, according to new research.
The research by investment firm AJ Bell also finds half of its customers with retirement investments have rethought their retirement plans or strategy in response to the challenging economic climate. Almost 20% have switched investment strategy as a result of economic and market turbulence and over 10 per cent say they will draw less income in retirement.
The research also finds little appetite for buying annuities in retirement despite rates improving significantly over the past year. Annuities pay out a regular income for the rest of a person’s life, no matter how long they live in return for a lump sum payment or a series of installments.
Tom Selby, head of retirement policy at AJ Bell, says: “The longer the cost-of-living crisis drags on, the more the issue of sustainability will be driven up the agenda as people are forced to turn to their retirement pots to maintain their standard of living.
“For those who have stopped working, that might mean increasing withdrawals in line with inflation. Given inflation is currently running at double digits, this creates a real risk to the sustainability of withdrawals, particularly where large withdrawals are coupled with falling markets.
“Among those aged 55 or over who are still working, we will inevitably see more people turning to their retirement pot earlier than planned, either to cover their own increased living costs or help a loved one facing financial difficulty.
“The most recent data from HMRC suggests this was already happening in 2022, with a staggering £3.6 billion of flexible pension withdrawals made between 1 April and 30 June 2022 – a 23% increase compared to the same period in 2021.”
Selby warned that 2023 could be the year when rising costs ‘really start to bit’ and said that, for those forced to access their pension earlier than planned as a result, this could have long-term consequences, including reduced pension when they do retire and – if they access taxable income flexibly from their pension pot, they will be affected by the money purchase annual allowance (MPAA), which reduces the annual allowance from £40,000 to £4,000 and removes the ability to carry forward any unused allowance from the previous three tax years. He called for the government to review the level of MPAA as a matter of urgency.
Meanwhile, figure from the Office for National Statistics show that 32% of private sector organisations with 10 or more employees experienced a shortage of workers in December.