Pension shortfall forces move to part-time work

Older workers are increasingly moving to part-time jobs, and using some of their pension to supplement their income, as they cannot afford to retire completely.

A study on the impact of the recession on older workers, to be published next week by Help the Aged and Age Concern, has found that 60 per cent of people aged over 50 say they may have to work longer than they originally intended.

After stock market falls wiped up to a third off the value of many people’s pensions, many cannot afford to retire at the date they had planned and are hoping that delaying retirement will allow their funds to recover.

Pension providers reported an increase in the amount of people using phased drawdown – where the entire pension is not activated all at once but instead in stages. This allows people to stagger the withdrawal of up to a quarter of their pension fund in tax-free cash, either to supplement their income or to pay off debts.

Brewin Dolphin, the wealth manager, said clients were taking as much tax-free cash as possible from their pension but not taking an income from the remainder, in the hope that the funds would recover and annuity rates rise.

Others are gradually phasing their purchase of an annuity, which avoids the risk of buying an annuity when rates are at a low point, according to Standard Life.

High earners who have seen a sharp drop in their income, for example through the loss of bonuses, are using the cash in their pension to pay off tax bills, Scottish Widows reported.

Pension providers and financial advisers are bracing themselves for a flood of inquiries around part-time working and phased retirement, as people are increasingly forced to carry on working after they had planned.

Experts predicted that the trend was the sign of things to come. “Phased retirement has always been traditionally seen as a way of bringing in early retirement,” said Rachel Vahey, head of pensions at Aegon.

“What we will see in the future is that people will carry on working until 65 and it will be a way of extending their working life, not cutting it short.”