According to a new report a growing band of pensioners, dubbed ‘Wearies’ will be forced to work past their normal retirement age to supplement their falling pension and to help makes ends meet.
The report commissioned by the pension provider Friends Life, and produced by the think tank Future Foundation, claims that a new generation of ‘Wearies’, working, entrepreneurial and active retirees, is being produced as a result of the current pensions crisis.
If the report’s findings are true the traditional view of retirement will be shattered, replaced by a group of people forced to work to help make ends meet after receiving less from their pensions than the expected.
Martin Palmer, of Friends Life, said: “We’re expecting the traditional image of the pensioner with slippers and rocking chair to change completely.”
Palmer continued: “Many will not have saved adequately for a secure retirement and, with years of fiscal austerity taking their toll, by 2020 many people in their 70s simply will not be able to afford to give up working.”
“Necessity is the mother of invention and ‘Wearies’ will be among the most innovative and entrepreneurial contributors to the UK economy, despite their senior years.”
Prepared to work
The report found that around 50% of those people who have already retired were prepared to work, but that number leaps to 75% amongst those who are yet to retire.
Pensioners and would be retirees are suffering significant financial hardship during the economic downturn, in fact these two groups have been hit in a number of ways.
Lower pension funds
Many people have seen their pension fund hit by poor performance on the world’s stockmarkets over the past few years, leaving them with less money to provide an income in retirement.
The death of the final salary pension in the private sector has also reduced retirement income for many. Only last week Shell announced changes to their final salary pension, following the lead of many UK employer’s who have closed these ‘gold plated’ pensions in favour of money purchase arrangements, which rely on positive investment performance to produce an increase the size of funds.
Falling Annuity rates
Although other options are available an Annuity is still the most popular method of converting a pension fund into an income.
An Annuity rates comparison will show that over the past few years a combination of factors, although mainly increased life expectancy, has caused a steady fall in Annuity rates. However in 2011 falling gilt yields caused Annuity rates to fall even faster; over the past six months our pension Annuity calculator has shown that Annuity rates have fallen by around 11%.
Last year’s ruling by the European Court of Justice on gender discrimination by insurance companies and the EU’s new Solvency II rules are likely to push rates still lower.
Clearly, lower Annuity rates mean would be retirees, who choose this option, will get less income in retirement, making it even harder to make ends meet.
Low interest rates
Since the credit crunch the Bank of England has kept interest rates at all time lows to try and aid the economic recovery, this has hurt savers, many of who are already retired or are approaching retirement.
People approach retirement tend to try and save harder and people who have already retired often rely on the interest from their savings to top up their pension income. Even the best savings interest rates are lower than they were just a few years ago, causing many pensioners to seen a significant drop in their savings income, making it harder for some to make ends meet.
Incomes which have fallen, because of smaller pension funds, falling Annuity rates or low interest rates, have also been attacked by high inflation.
Although inflation looks to have peaked for now the high levels seen over the past couple of years have really hurt pensioners and also those people approaching retirement.
Financial experts believe that pensioners suffer a higher level of inflation than both official measures, because pensioners buy more of the goods and services which have experienced above average rises in inflation, such as fuel and food. Furthermore many pensioners are on fixed incomes, which are eroded even faster by high levels of inflation.
The report confirms the fears of many in the next generation of retirees, who it seems, will have to work longer and receive less pension income than previous generations.
Those people retiring over the next few years will be ‘Weary’ in more ways than one.