A blow if you need to work on

By Nicky Burridge,Press Association
Sunday 23 October 2011 09:01

Today's High Court ruling is bad news for the thousands of people who are likely to need to work on past the age of 65.

Although the Government plans to bring forward a consultation on the default retirement age to next year, any change is still likely to be some way off, and is dependent on the outcome of the consultation.

In the meantime, companies can continue to dismiss staff as soon as they turn 65 without having to give them redundancy payments.

But there is growing evidence that increasing numbers of people want to work on past the age of 65, while in many cases, their financial circumstances mean they have little choice but to do so.

The credit crunch has caused global stock markets to dive, and while those nearing retirement are advised to shift their money out of equities into less volatile bonds, people who remained invested in them have seen the value of their pension fund dive by around 12per cent since September 2007.

A recent survey carried out by Aon Consulting found that two-thirds of workers think they will have to delay their retirement plans because of the recession, with 19per cent expecting to have to work for an extra six to nine years.

Forcing these people to give up work at 65 is likely to have a significant impact on their financial situation during retirement, and in the worst cases could leave people in poverty.

A separate study found that one in 10 people aged over 65 are currently still working, with half of these claiming they cannot afford to retire.

The demise of final salary pension schemes, with these being replaced by less generous defined contribution ones, is likely to lead to increasing numbers of workers wanting to work on past the default retirement age.

Under defined contribution pensions, individuals and not their employer, have to shoulder the risk of investment volatility and increased life expectancy.

They also have to use their pension pot to buy an annuity to provide them with an income, rather than having this paid by their company.

Not only do the less generous defined contribution schemes mean people are likely to have to work for longer to achieve a similar retirement income, but there are also considerable advantages to delaying the purchase of an annuity.

A 65-year-old man can convert a £100,000 pension pot into an annual income of £7,200 if he buys an annuity that does not rise in line with inflation from the current best-buy provider Aviva.

But if he delays converting his pension pot into an annuity until he is 70, the annual income he can expect jumps to £8,300.

House price falls of more than 20per cent since 2007 are also likely to have caused people who were relying on their home to boost their retirement income to work on for longer.

Those who had planned to unlock cash in their property either through selling up and buying a smaller home or through an equity release scheme, may now find they have insufficient equity to do this.

But as well as the financial need to continue working, many people do not feel ready to retire at 65.

The average life expectancy for a man aged 65 is currently 89, while for a woman it is even higher at 91, meaning people can expect to face around two-and-a-half decades in retirement if they stop work at 65.

Faced with the prospect of a low pension and a long retirement, it increasingly makes sense for many people to work on for longer.

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