Don’t fret if you haven’t built up huge private savings by the time you draw your state pension. Just work part-time in retirement and enjoy it
The consensus that the state pension age will rise inexorably for the foreseeable future looks a little less secure this weekend.
In our Money Lab column a senior academic at the LSE took aim at the near-universal belief that the state pension was unaffordable unless it began at a later age and that everyone would have to get used to working longer.
Then, as we report elsewhere , it emerged that longevity may not be improving quite as quickly as we thought.
All of this may be true. But I think there are two other crucial factors that need to be borne in mind.
The first is that even if the state decides that we can carry on retiring at 65 or 66, as opposed to the predictions of 70 or more, will we want to? Even (Taiwan OTC: 6436.TWO – news) if we do, would it be good for us?
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The second is that focusing on the state pension age overlooks the fact that no one can retire on it alone and live in comfort; we also need to consider our private provision.
Speaking for myself, I dread the idea of quitting work completely on an arbitrary date in my mid‑60s. Work gives us a focus, a challenge and the social interaction that humans need. Even if our lifespans are not increasing at quite the rate we supposed, millions of people are already able and happy to work beyond state pension age.
This may be just as well, because for the generations of workers too young to have enjoyed membership of final salary pensions, retiring at the state pension age is likely to be financially impossible.
• Small pensions leave Britons resigned to working beyond 65
Many will be aware of the fact that their savings are far too small to fill the income gap they would face if they retired to the state’s schedule. I suspect a good many are quietly panicking about it and scrambling to save as much as possible so that their pension pot hits some magic figure which will be many hundreds of thousands of pounds calculated by the experts as the minimum needed for a comfortable retirement.
Far better, in my book, to plan instead to work beyond the state pension age.
And this work needn’t be full time. If you work just one day a week, you can cut the size of pension pot deemed necessary by actuaries by 20pc. Work two days and the sum falls by 40pc. These reduced amounts may be achievable without saving frantically.
Of course, the time will come when even a day or two’s work is too much. But the beauty of working beyond retirement age is that you can carry on saving and there will be no NI to pay, so you effectively get a tax cut.
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