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Would you work longer to boost your pension?

Would you work longer to boost your pension?

Category: Retirement

Updated: 23/02/2015
First Published: 23/02/2015

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

If you knew you could substantially boost your retirement income simply by staying in work for a few more years, would you do it? Well, if the figures are anything to go by, it could be worth considering, and you wouldn't even need to stay in work for too long.

Five years is all it takes

According to research from Friends Life, working just five years beyond state pension age could boost the income generated from retirement savings by a third (33%), with those additional pension contributions adding a valuable amount to the pot.

Friend's Life's calculations show that, for those in the lowest quartile of private pension savings, this increase will take weekly pension income from £156.90 per week to £208.80 once work is given up for good. As an added bonus, this would lift them above the average weekly living cost of £200.88 during retirement, thereby making up a shortfall that could otherwise have made their retirement a much greater financial struggle.

The income boost by deferring retirement can be seen across the range of pension incomes, and it can also be seen if you decide to stay in work for just one or three years longer, albeit to a far lesser extent. Choosing to work part-time after state pension age will also have a small impact – working part-time for an extra year could increase income by around £1.80 per week after retirement. It may not be much, but it's better than nothing!

Andy Curran, UK chief executive of Friends Life, commented: "It's really positive to see that people can make such a difference to their pension saving by working a relatively short amount of time beyond the State Pension Age. The retirement world is changing, and people are taking the decision to work for longer.

"This is why it is so critical to understand the full impact this will have on retirement income, and our new study uncovers how continuing to work for just a few more years can help consumers take back more control. To really make the most of retirement income, both Government and the pension industry have a responsibility to help people review their options and the implications of continuing in work."

Make it a choice – not a necessity

While it's great news that choosing to work longer could boost retirement income, you may not be so happy if it's a necessity. You don't want to find yourself facing a financial shortfall in retirement that only working longer can rectify, and that's why it's so important to plan ahead.

Saving as much as possible from as early as you can will hopefully mean you don't have to work any longer than you intend, and if you do, it'll be an active choice – after all, an extra third in income is a lot to pass up for even the most prepared of individuals – rather than a financial necessity. Utilise your workplace pension to benefit from employer contributions and tax relief, and don't forget about ISAs as another potential income stream for retirement. Plan ahead, and then you can give up work on your own terms.

What next?

5 reasons why you need a workplace pension

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.