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Welfare reform

Seven years of rock bottom interest rates push 7 million more UK employees to work past 65

  • Nearly a quarter of UK workers say their savings and retirement plans have been impacted by historic low 0.5% base rate
  • Two thirds of UK employees now expect to work beyond retirement age
  • 44% of employees likely to work beyond 65 blame insufficient pension savings
  • Spotlight on pensions in recent years has increased consumer awareness of low contributions

Almost one in four UK workers say they expect to work past the age of 65 as a result of low interest rates, according to research by Canada Life Group Insurance. This is equivalent to 7.2 million UK employees, with poor returns on savings taking its toll on the nation’s retirement plans.

Overall, 23% of employees have seen their retirement plans affected by low savings rates since the 0.5% Bank of England base rate was introduced seven years ago. This includes 8% who did not want to work beyond 65 but have now resigned themselves to doing so, and 16% who had contemplated working past 65 but now believe low interest rates will probably push them to do so.

Retiring at 65 out of reach for six in ten UK workers
Overall, two thirds (67%) of UK employees expect to work beyond the traditional retirement age of 65. This continues to climb as the reality of a rising State Pensions Age and the abolition of the default retirement age in 2012 becomes clear (2015 – 61%; 2012 – 35%).

Younger generations fare particularly badly: 85% of those aged 21-30 believe they will have to work beyond the age of 65. This is in stark contrast to those soon to retire, with just 58% of 61-65 year-olds saying they are likely to work beyond the traditional retirement age.

Poor pension savings lead many to work later in life
Financial pressures are the main factor people cite as the reason they’ll have to work beyond the traditional retirement age. More than two in five (44%) employees say their pension pot is not sufficient to retire at 65, up from 32% who said the same in 2015.

The proportion who believe they will have to carry on working because they have not prepared enough has also increased, almost doubling year-on-year (14% in 2015 vs 24% in 2016). A lack of state support is also noted: the number who say they will not be able to rely on a state pension has increased from 14% in 2015 to 18% in 2016.

However almost two in five (38%) say job enjoyment is the reason they would like to work for as long as possible into retirement.

Pensions reforms announced in the 2014 Budget have increased awareness of planning for retirement. One in five (20%) employees found that since reviewing their savings after the freedoms were announced, they will have to work longer than they thought, highlighting the importance of planning ahead.

Table 1: Factors that make people work past the age of 65

  2015 2016
My pension will not be sufficient so I need to continue earning a wage 32% 44%
I enjoy my job and would like to work for as long as possible 20% 38%
I have saved for my retirement but the cost of living is so high I will still need a wage 13% 25%
I have not prepared for retirement/am not sure how long my money will last 14% 24%
I am worried about the cost of long-term care so would like to earn for as long as possible 10% 19%
I can no longer rely on a state pension/state benefits 14% 18%
To continue receiving valuable employee benefits 4% 12%
I have children to support at home/through university 5% 6%

N.B percentages will not add up to 100 as respondents could tick more than one option

Paul Avis, Marketing Director of Canada Life Group, comments:

“7 years of rock bottom interest rates have had a lasting impact on a generation already plagued by insufficient pension contributions, with many forced to work past the age of 65. Recent reforms have spurred a long overdue national conversation about pension savings and a wave of employees have been confronted with the hard truth they are going to have to work beyond the traditional retirement age. The rising cost of buying a home and new savings options (such as the Lifetime ISA) could mean younger people prioritise saving for other long-term goals above pensions, leaving them in an even weaker position when they eventually approach traditional retirement age.

“An older workforce – be it out of choice or financial necessity – brings with it many benefits, such as a wider skillset and breadth of experience. Employers also need to factor in a larger number of health issues, with older workers more likely to experience illness or injury. Employee benefits should reflect this changing demographic. Flexible working or workplace wellbeing initiatives can prove invaluable to older workers, while critical illness cover and income protection ensure much needed support in the event of an accident or illness.”

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Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

Canada Life International Limited and CLI Institutional Limited are Isle of Man registered companies authorised and regulated by the Isle of Man Financial Services Authority.

Canada Life International Assurance (Ireland) DAC is authorised and regulated by the Central Bank of Ireland.

Stonehaven UK Limited and MGM Advantage Life Limited, trading as Canada Life, are subsidiaries of The Canada Life Group (U.K.) Limited. Stonehaven UK Ltd is authorised and regulated by the Financial Conduct Authority. MGM Advantage Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority.