Rising living costs and low interest rates are forcing pensioners back to work in increasing numbers.
Figures released last week by the government show that the number of pensioner households where one or members were working had risen by 0.4% over the past three months.
The figures, produced by the Office for National Statistics (ONS), form part of a trend with the number of pensioners returning to work increasing over the past few years.
Separate figures from the recruitment website peopleperhour.com show that number of newly retired people seeking work has more than doubled over the past year. Unsurprisingly perhaps the largest number of pensioners returning to work was in the south east where living costs are highest.
Rising living costs
One of the main reasons for the increased number of pensioners returning to work is the rising cost of living.
Inflation is well above the Bank of England’s target, but pensioners actually suffer a higher rate of inflation that the official measurements suggest because their spending is skewed towards items which are rising in price quicker than the average.
Low interest rates
Pensioners who previously lived off interest from their savings have seen their ‘income’ fall significantly over recent years with interest rates at all time lows. This has meant pensioners are often faced with a stark choice, return to work or start to use capital; many pensioners clearly prefer the former route.
The third reason for pensioners being forced back to work are the all time low Annuity rates which we are currently experiencing.
Buying an Annuity is the most popular way for most people to convert their pension into an income, however a quick glance at any pension Annuity calculator will show how much Annuity rates have dropped over recent months. It will also show the huge cost, sometimes as much as 50%, of buying an Annuity with payments increasing in line with RPI.
The cost of buying such indexation is so high most people opt to by a level Annuity; the buying power of which will be quickly eroded if current levels of inflation continue.
The problem of a level Annuity was further highlighted by figures released recently by the Prudential, which showed that inflation could cut the spending power of pensioners by 60% over a 20 year retirement.
Head of business development at Prudential, Vince Smith Hughes, said “Pensioners on a fixed income are particularly vulnerable when it comes to rising living costs”.