Semi-retirement now lasts on average 4 years and 2 months, taking majority through to over 69 year old (before stopping paid work)2 October 2017
Semi-retirement trend rising: 19% of 66-71-year olds still in paid work and 56% of pre-retirees predicting working beyond age 65, finds new Dunstan Thomas-commissioned nationwide study
One in five (19%) of 66-71-year olds in the UK are still working full- or part-time today to supplement their retirement incomes. The 19% that are still working is made up of 8% of pensioners who are completing 30-hours or more of paid work each week, while 11% are working part-time (up to 29 hours) per week for money.
Looking across all 54-71-year-old Baby Boomers who are not yet retired, over half (56%) already are or predict working full- or part-time to supplement their retirement income beyond the State Pension Age (SPA) of 65 years.*
Semi-retirement period set to last over 4 years
The findings shine a light on the blurring of the lines between work and retirement and beg the question: when are most of us really going to retire in the traditional sense? So, what does the new reality of semi-retirement look like for the minority that are already embracing it today and the majority anticipating it?
Those not yet retired who are or plan to work beyond the SPA, predicted an average ‘semi-retirement’ period of four years and two months in which they will continue to work part or full-time. A third of men (32%) and 17% of women predicted they would be in semi-retirement for up to five years. One in every seven men (14%) and nearly as many women (12%) think they will never stop paid work!
The comprehensive findings of the Dunstan Thomas-commissioned nationwide study indicate that falling retirement savings levels, increasing life expectancy and changing working patterns are already significantly impacting people’s retirement plans.
Shifting retirement age expectations
More than nine out of 10 (92%) UK-based 54-71-year-olds, known as the Baby Boomer generation born between 1946 and 1963, anticipated retiring by the current SPA of 65 years old when they enrolled into their first pension. However, when asked about likely or actual retirement age today, only 67% think they will be (or were) fully-retired by the age of 65.
Significantly, one fifth (19%) of Baby Boomers already see actual or anticipated retirement age in the 66-68-year age range. Male and female SPA is set to rise to 66 years in October 2020 and increase again, to 68 years by 2039.
Baby Boomer total retirement incomes average £23,376 - 40% less than average final salaries
Baby Boomers’ overall pre-tax income in retirement from state and personal pensions and other investment sources is an average of £23,376, across the 54-71-year old age group captured by the study. Older baby boomers aged 66-71 averaged retirement income of a healthy £25,323; while 60-65 years olds predicted an average of £24,089; and 54-59-year olds, presumably those most affected by the decline in Defined Benefit (DB) final salary pension penetration, predicted total average retirement incomes of just £20,486 per annum.
By way of comparison, the Prudential recently unveiled retirement income averages from personal and state pensions sources only, for those known to be retiring in 2017, at £18,100. 2017’s average salaries of people that have worked for more than 20-years are now £38,719 (Source: PayScale) so retirement income predictions indicate an average fall in income in retirement of £15,343 per year or 40%. Based on these numbers, the 54-59-year olds in this study anticipate nearly halving their income when they retire.
Older women hit hardest by SPA rises
Baby Boomer women are more than twice as likely as their male counterparts to rely on their state pension alone – 21% of women and 9% of men will rely on the universal state pension for the entirety of their retirement income, The Dunstan Thomas study found. Reflecting modern trends of greater job mobility and fewer jobs for life, the oldest tranche of Boomers aged 66- 71 years, are likely to be much more dependent on the state pension than the youngest group aged 54-59 years old who will have moved around more: one in five (20%) 66-71-year olds will depend on the state pension alone, whereas only 11% of those aged 54-59-year-old anticipate total reliance on the state for their retirement income.
Adrian Boulding of Dunstan Thomas commented on the clear gender bias of yesteryear still showing in women’s heavier reliance on state pension for income in retirement:
“The fact that women are more than twice as likely than men to be reliant on the state pension alone for an income in retirement reflects the fact that until as late as the 1970s, women tended to be excluded from occupational schemes. Others chose not to join an employer scheme - thinking that they would be able to rely on their husband’s pension savings in retirement. Rising divorce rates have not helped but there is a deep-seated gender bias at work here which is still leaving women more vulnerable to poverty in their old age than men today.
“Sadly the gender bias has not gone away even today: current auto-enrolment rules requiring annual earnings of £10,000 before your employer has to auto-enrol you, and not counting the first £5,876 of annual earnings for pension contributions, weigh heavily against women combining part-time work with caring duties.”
The Institute of Fiscal Studies (IFS) recently published a report last month which calculated that, because of the changes to the SPA for women, increasing it from 60 to 63 initially (and now 64), 15% of women aged between 60 and 62 were now in poverty, a rise of 6.4 percentage points.
Aegon’s own analysis found women have, on average, £48,700 less in personal pension pots than men.
Only 1 in 5 Baby Boomers can predict their retirement income
Over a third (35%) of all Baby Boomers don’t know exactly how much income they are going to be able to live on in retirement. Understandably, although still worryingly, more than four in 10 (42%) 54-59-year old, pre-retirement Baby Boomers can’t even approximate their future retirement income. Sadly, 31% of Boomers have never actively planned for their retirement even though a third of them are already over 65. Only 17% of all Baby Boomers know exactly what retirement income to expect when they retire.
The oldest tranche of Baby Boomers (66-71 years) which Dunstan Thomas researched, are three times more likely to have an accurate picture of their retirement income than 54-59-year old tranche (36% and 11% respectively), although by their age it may be too late to do anything other than keep working or downsize to fix any significant income shortfalls.
Providers missing opportunity to help as retirement plans change
Despite clear changes in planned retirement ages, more than half (51%) have not informed their product providers of changes in retirement age, with 49% not receiving prompts from their provider. Planned retirement age is a key determinant of both how much savers will need to put in each year to reach retirement income goals, and asset selection in the period immediately before retirement.
Traditionally, in the last few years before retirement, funds accumulated are transferred into lower growth, less risky asset types. Only 9% of providers invited Baby Boomers approaching retirement to update their retirement age prediction; 11% of customers informed their insurer without being prompted to do so.
These findings indicate that providers and fund managers need to work harder to communicate the value of planning asset allocation well ahead of decumulation. Fund managers may also need to design more funds for holding through the SPA and well beyond.
Financial support for other family members changes little once Boomers retire
Nearly half (43%) of Baby Boomers think that they will be spending the same amount on supporting family members in-retirement, as they do whilst still working and 5% think they will be financially supporting family members even more once retired. A small percentage (4%) of 66-71-year old Boomers think they will be still supporting their children in retirement for up to five years, a further 3% think they will be supporting them for up to 10 years after they’ve retired. Just 1% of older Boomers expect to be supporting their parents for under a year once retired. Although 2% expect to be providing for relations other than parents, children or parents-in-law, for up to five years. A further 2% predict they will be looking after other relations for six to 10 years into retirement.
Family care burden looks significant for a minority of retiring Baby Boomers
6% of Baby Boomers are providing of 1-5 hours of free care to a family member such as a parent or grandchild each week. A further 6% are providing 6-10 hours each week, while 3% are providing more than 30-hours of care to a family member each week. Average number of hours of care provided to a family member is three hours per week. Over a third (35%) of the sample of 54-71-year olds, who care for a family member, predicted an increase in the family care burden being carried by them personally once they are retired. Interestingly, where this support is provided in nearly half the instances (44%) it enables another family member to take on more paid work.
Adrian Boulding, Director of Retirement Strategy, Dunstan Thomas commented on this finding: “DB pension-fuelled Baby Boomers look to be better off in retirement than younger generations. But it’s important to acknowledge that Baby Boomers are also the ‘sandwich generation’ - caught between assisting very elderly relations and still supporting and often housing their kids and in some cases providing ‘free’ childcare to grandchildren. The old two-thirds of final salary calculation was predicated on the notion that retirees would not have any other dependents to look after, which is definitely not the case for over a third of Baby Boomers today.”
Housing equity needs to be added to retirement income estimates
Some of the reason why pre-retirement Baby Boomers do not have an accurate view of their likely retirement income is that a substantial minority are now anticipating using equity in their home to supplement any retirement income shortfalls (see the TISA Old Mutual Wealth ‘Can housing wealth save the day?’ Report on this, dated 24th November 2016).
The TISA report cites the lack of access to information, specialist financial advice and life-time mortgage products to enable conversion of equity into annuity income, as the key barriers to helping people to make an accurate assessments of what they can expect from equity release, despite the fact that many have decided that they will be at least partially-reliant on property equity to fund their retirement.
Third of Baby Boomers plan to downsize, 1 in 7 to release home equity to supplement retirement income
Confirming this, the Dunstan Thomas Baby Boomer Retirement Planning Study found that nearly a third (29%) of all 1,002 54-71-year olds questioned, were likely to or had already downsized their home to supplement their retirement income; while 14% were likely to or had already released equity from their home.
29% of Boomers still don’t understand Pension Freedoms choices
When asked how soon before retirement they would consider reviewing their pension-held investment/assets to reflect DC pension decumulation choices (listed as encashment, purchasing an annuity or some form of income drawdown), nearly a third (29%) of Baby Boomers simply didn’t understand the options that are now open to them from age 55 under new Pension Freedoms rules.
One in 10 are leaving the asset selection decision-making entirely to their provider with a view to buying an annuity from them; while 19% are planning to look at adjusting their portfolio 12-months before decumulation, which may well be too late. Just 7% planned to review asset and risk exposure levels at least five years before beginning drawing their pension.
Half of Baby Boomers benefitting from DB pensions
One of the fault lines in terms of retirement savings provision amongst Baby Boomers is whether they have access to a Defined Benefit (DB) /final salary pensions. Median values of Defined Contribution (DC) pensions are worth, on average, 8-24% of their peers saving into DB pensions. 85% of people working in the public sector still have access to DB pensions. Nearly half (48%) of Dunstan Thomas’ sample of Baby Boomers have DB pensions. Nearly a quarter (23%) have a DC personal pension, 15% have a workplace DC scheme while 15% are wholly dependent on the state pension for retirement income. Positively from the point of view of the regulator currently conducting a thematic review into the DB to DC pension transfer market, only 1% of Baby Boomer respondents were actively looking to transfer out of their DB scheme into a DC equivalent.
Baby Boomers are looking to the Universal State Pension and their own personal pensions savings to provide a mean average of 68% of their retirement income while the balance will be from other non-pensionable savings and investments.
Pensions Dashboard could offer retirement planning panacea for nearly half of Baby Boomers
Dunstan Thomas’ survey also sought reaction to the idea of the Pensions Dashboard which is due to be delivered by 2019. One in five Baby Boomers (22%) said they would use the Dashboard to assess whether “I’ve got enough in my pension pots to hit my retirement income target”. Nearly as many (20%) were already in decumulation mode and wanted to work out “How much I can draw monthly out of my income drawdown plan from my pension without running out of money too quickly”. A smaller group (15%) wanted to use it to run comparisons between different decumulation options – cashing it in and putting it into an interest-bearing bank account, selecting an income drawdown or annuity scheme. Others (13%) wanted to use it to “work out how much I need to set aside for an adequate long-term care pot”.
Adrian Boulding, Director of Retirement Strategy at Dunstan Thomas, added:
“These findings confirm our view that consumers will not take kindly to a Dashboard that does not support post-retirement decumulation decision-making as well as pre-retirement accumulation and at-retirement decision-making. The line between pre- and post-retirement is irreversibly blurred and dashboards must reflect this.”
*State Pension Age for women is 64-years old in 2017. Parity with male SPA is not reached until 2018.
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