Published On: Mon, Aug 28th, 2017

Pensions news: Five more years of work could BOOST retirement incomes by £50,000

Analysis suggests that for those in good health it pays to remain in employment, with retirement incomes boosted by two-thirds.

Those who have built up a private savings fund of £105,496 by paying in £355 a month by the age of 65 can buy an annuity to give them a monthly pension of £457, according to figures prepared for the insurer Aegon. 

Another three years of work would see the pot could grow by £25,542, giving them an extra £164 a month based on investment growth of four per cent.

But if they slogged away for five years the value of funds would reach £151,884, meaning a monthly pension of £771.

Malcolm McLean, senior consultant at Barnett Waddingham, said: “Provided the mental and physical capacity is there, it makes sense to work for longer to get the best deal. 

With life expectancy rising there is still plenty of time to enjoy returns. These days employers can’t throw people out on account of their age, so I would recommend it.” 

Official figures show the employment rate for people 65 and over more than doubled, from 4.9 per cent to 10.2per cent, in the 30 years to 2015. 

That is expected to continue to rise with rocketing life expectancy and pressure on savings because of record low interest rates and rising inflation. 

The idea of working longer comes as the age at which the state pension can be drawn is rising. Between October 2018 and October 2020, the pension age for both men and women will rise to 66. 

Former Pensions Minister Baroness Altmann said: “Even working for one or two years extra can make a significant difference. 

“If you are able to, your lifetime income will be higher, you will have more money to spend both now and in the future and the economy benefits. 

“It used to be the case that people aged 60 or 65 were past it but these days people are simply not old like they used to be, so why should they write themselves off? 

“Continuing in employment – even part-time – gives people something that stopping work would make them miss.” 

Those in defined-benefit or final salary schemes can defer taking their pension. 

Most private schemes will increase pensions by between six and eight per cent for each year it is not cashed in.

State pensions are similar. If you have reached state pension age since April 2016 you will receive one per cent for every nine weeks you hold off cashing it – giving you 5.8 per cent a year. 

Although this is not as generous as the rate under the old system, it may still pay to delay.

Those receiving the new full state pension of £159.55 get £8,296.60 a year. But delay it until 66 and it will rise by £9.21 a week, or £479 a year, plus inflation. 

However, if you wait until 70 you will get £51.95 a week, or an extra £2,701 a year, plus inflation.

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