We’ve all read numerous reports over recent years which state that the government has once again raised the “retirement age”. In six years’ time this will be 66 for both men and women while later in the 2020s it will rise to 67. But in fact, the only thing directly affected by these legislative changes is the age at which you can start claiming your state pension.
It is true that until a few years ago, for most people state pension age was synonymous with retirement age. But as a new report from Zopa and financial analyst Consumer Intelligence shows, the link has long since been broken.
Today, the date we become eligible for the state pension is only one factor – and a fairly minor one at that – in deciding when we retire.
We also have to consider our overall financial situation as well as whether we actually want to give up work altogether.
What the new report has also found is that the traditional concept of retirement as a one-off event – where we go from full-time employment to not working at all – is fast becoming redundant.
Today, from around the age of 50, people are increasingly likely to start cutting the hours they work, often to focus on other activities such as volunteering, childcare, studying or exercise.
Almost half said they worked less in order to travel more, while many had decided to start their own businesses in their new-found free time.
At the other end of the scale, we are more likely to end up doing some form of work into our late sixties and seventies. Almost half of the UK’s over-65s are still in paid or unpaid employment of one kind or another.
So what is causing these changes?
The main driver is the increasing life expectancy that has resulted from improvements in medical science and better lifestyles.
The fact is that today’s 65-year-olds are more than capable of remaining in work. Some do so for financial reasons, but this is a minority – just one in six, the report found.
A quarter say they work to keep their minds active; others simply want to keep busy or physically active.
An important legal change is that employers have been banned from imposing their own retirement ages: older workers can no longer be sacked simply because they are eligible to start drawing their pension. The result of this is that companies are starting to realise the benefits of a mature workforce, and are now more likely to start offering reduced or more flexible hours to older staff.
Zopa CEO Giles Andrews says:
“Retirement in Britain is no longer an event that involves clearing your desk at 65. Having a more fluid retirement process is a result of many of us being fitter and healthier later into our lives, not wanting to simply down tools at age 65 or being unable to afford to stop working completely.”
These changes are understandably causing some confusion among younger workers. Almost 90% of 50 to 54-year-olds say they don’t know when they’ll retire, while more than half of those aged between 50 and 64 said that changes to the state pension age had muddied the waters.
As ever, though, money is the big issue. Cutting your working hours is only possible if your financial position is reasonably secure, and less than a quarter of people aged between 55 and 64 said they had enough cash put aside up to retire straight away. Phasing retirement over time will ultimately require more flexible financial products that are in line with more flexible working arrangements.
So if you want to make the most of this new approach to working in later life, now is the time to start planning.