Workers draw early on pension savings

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Britain’s workers are drawing on their pensions savings long before reaching state retirement age, new official data show.

Some 31 per cent of all households headed by someone aged 50 to 64 who had acquired pension savings were drawing on them before reaching state retirement age in the 2006-08 period, according to the Office for National Statistics in its latest Pension Trends Report.

The figures come as ministers are increasing their efforts to boost workforce participation rates by older people – generally defined as those aged between 50 and the state pension age – amid an ageing baby-boomer generation and falling fertility rates in recent decades.

The study noted that although many older people were drawing their benefits early, they could well have been continuing to contribute to their pension savings, either through employment elsewhere or through contributions from another member of the household.

Indeed, the ONS said, about half of the households drawing pensions had at least one member still accruing additional benefits.

However the availability even of private pension benefits before retirement age has encouraged people to leave the workforce well before they are physically no longer able to work full time, not only in the UK but in much of the industrialised world.

In the UK, new rules aimed at keeping people working longer took effect last year. Private pensions may not now be drawn until the age of 55, up from 50.

The ONS noted that those with defined benefit pensions, which are typically much more generous than other types, were roughly twice as likely to be retired before state pension age as those with no pension savings at all and that those with defined contribution schemes were 24 per cent less likely than those without pensions to be retired.

The data suggest that the decline in the availability of defined benefit schemes may prod more 50-64-year-old adults to remain at work. Separate ONS data show that this has increasingly been the case.

Separately, the Pension Trends report highlighted the glaring gap in savings between the wealthiest workers and those whose household wealth was no more than the median average.

The bottom 50 per cent of households headed by someone aged 50 to 64 had about £122bn in savings, or 6 per cent of the total. The most common form of savings for this age group at any income level is pension savings.

But the report also warns of the possible limitations of new rules that begin to take effect next year, requiring all employers automatically to offer pension savings to workers.

Of those who reported that they had a “strong” or “moderate” propensity to save 41 per cent said they had not been able to do so within the previous 12 months, or ever.

This suggests that those who need to save the most may be among those most likely to “opt out” of pension savings.

Among older adults, those who had the most typically saved the most. For households headed by those aged 50 to 64, median total savings ranged from £74,600 in the lowest earned income band to £797,000 in the highest band.

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