Savers aiming for retirement face working in late 70s

Sir Steve Webb, a former pensions minister, warned that the dream of a flexible retirement where people gradually go part-time before giving up work entirely when it suits them could turn out to be a “mirage” - if people only contribute minimum amounts into their workplace pension pot.

Sir Steve, who is now director of policy at Royal London, said an average worker wanting a “gold standard” of retirement - where their pension income equates to two-thirds of pre-retirement levels - may have to work until they are 79 before they can afford to fully retire if they are aiming to reduce their working hours gradually.

Someone targeting a more modest “silver standard” of retirement - where their income is around half pre-retirement levels - could have to work until they are 69, Royal London calculated.

The scenarios are based on someone only saving into their pension at the legal minimum level, deciding to draw a state pension as soon as they can and immediately cutting down to part-time work by halving their previous hours.

Royal London said those who also want to have protection against inflation when they eventually take their retirement income and some support for a widow or widower could still be working in their 80s before they achieve their desired income.

Sir Steve said: “A flexible retirement, where we can gradually reduce our hours and stop work at an acceptable age, is likely to be a mirage for millions of people based on current levels of saving.

“Those who opt for a gradual retirement, drawing a state pension as soon as they can and cutting their working hours could easily find themselves unable to afford to retire fully until they are in their late 70s or beyond, unless they have built up a significant private pension pot.”