There are now more than half a million people aged 90 or above in England and Wales, according to official statistics.
With people living for longer, the once-traditional notion of a 20-year retirement is now somewhat redundant, but what does this mean for your pension savings?
Read on to find out the different options for accessing your pension pots, including defined contribution pension plans, and for our advice on making your money last longer.
Understanding Your Pension Needs
How many years will I need my pension to last?
Determining how many years your pension will need to last is a crucial step in planning for retirement. With increasing life expectancy, it’s essential to assume that you’ll live longer than you think. The Office for National Statistics provides a Life Expectancy Calculator to help estimate your life expectancy and chances of living to 100 years old. To make your pension last, you should aim to have an income that covers essential costs for the rest of your life.
Consider the following factors to estimate how many years your pension will need to last:
- Your current age and health
- Your lifestyle and spending habits
- Your income and expenses in retirement
- Your pension savings and projected income
By understanding your pension needs, you can create a personalized plan to make your pension last a lifetime.
Half a million people are aged 90 or above, according to national statistics
The latest data from the Office for National Statistics (ONS) shows there were 551,760 people in England and Wales aged 90 or above in 2023. This is a 53% increase on the figure recorded 20 years ago.
Women still tend to live for longer. There were just over twice as many females in their nineties in 2023, but the gap between men and women is reducing over time.
The ‘100 club’ is also growing. There were 14,850 centenarians (people aged 100 or older) in 2023, more than double the 7,270 in 2003.
Delaying your retirement
The grim reality is that you can’t say when your retirement will end. However, you can choose when it starts.
Until 2011, there was a default retirement age of 65, but now the decision about when to stop working is in your hands.
Labour market data from the Department for Work and Pensions (DWP) shows the employment rate at age 65 has seen one of the largest increases over time when compared to other age groups, up from 27% in 2014 to 40% in 2024.
The average age of exit from the workforce has now reached a high of 65.7 for men and 64.5 for women.
Can you run out of money?
A rise in life expectancy will impact retirement planning, as living for longer will mean the need for larger pension pots.
Many people leaving the workforce in their mid-60s could spend around 25 to 30 years in retirement.
For most people, the decision about when to retire comes down to when they feel they can afford it, which in turn is dependent on the income they’ve got coming in.
An annuity provides guaranteed income for life
An annuity allows you to swap your pension savings for a guaranteed regular income that will last for the rest of your life. So you’ll receive payments for your entire retirement, whether it lasts for four or forty years.
How much you get is determined by the amount that you’ve saved, your health and the rate the annuity provider offers. This will allow you to put aside any worries about potential stock market fluctuations.
Once it’s set up, an annuity can’t be changed, so you need to be sure that it’s an option that suits your circumstances. Doing your research and shopping around for the best annuity rate available is essential.
Pension drawdown offers risk and reward
With pension drawdown, you keep your savings invested when you reach retirement and take money out of your pension pot as you wish. This is the most flexible way to access your retirement savings.
As your pension invested stays in the stock market, there is the risk that your fund may fall in value. The upside is that investment growth can provide higher returns and result in your pot continuing to increase in value.
The obvious downside with drawdown is that you could run out of money if you take too much income from your pension pot.
Recent data from the Financial Conduct Authority (FCA) indicates that 220,000 pots had an annual withdrawal rate of 8% in 2023/24, some way above the established rule of thumb of around 4%.
Hargreaves Lansdown calculates that if a 65-year-old withdraws 8% per year from a £200,000 pot, it would be depleted by the age of 82 (based on 5% investment growth per year).
Final countdown for final salary
If you are lucky enough to have access to a defined benefit (DB) pension, making your money last becomes a more straightforward proposition.
A DB pension scheme, sometimes called a final salary or career average pension scheme, is one that promises to pay out an income for life based on how much you earn when you retire.
Unlike defined contribution (DC) pensions – which will need to be converted into pension drawdown, an annuity or be fully cashed in – the amount you’ll get at retirement is guaranteed. It will be paid directly to you, and you won’t have to use your pension pot to decide your next move.
The proportion of pensioners receiving an income from personal or workplace pensions remained steady at 70% between 2012-13 and 2022-23. However, far fewer people are now entitled to the guaranteed income provided by final salary schemes.
In 2012, there were 12.8 million people with some kind of entitlement to a DB pension in the private sector. By 2023, this figure had fallen to 9.6 million.
A wait for the state pension and workplace pension
The other form of guaranteed income you’ll get in retirement is the state pension, but you may have to wait a while.
The age at which you qualify is currently 66 and will rise to 67 between 2026 and 2028. It will then increase again to age 68, with the change legislated to happen between 2044 and 2046.
If you’ve made over 35 years of National Insurance contributions, you’ll usually be entitled to receive a full pension when you reach state pension age.
Since April 2024, those qualifying for the full new state pension have received £221.20 a week. Those who are on the older basic state pension get £169.50 in 2024-25.
Maximizing Your Pension Savings
Employer Pension Contributions
Check to see if your employer will contribute more
Maximizing your employer pension contributions is an excellent way to boost your pension savings. Some employers offer matching contributions, where they contribute a certain amount to your pension pot based on your contributions. This can be a direct match, where if you contribute an extra 1%, they add an extra 1%. There may be a maximum level that your employer will match, so it’s essential to check the rules of your plan.
To make the most of your employer contributions:
- Check your plan’s rules to see if your employer offers matching contributions
- Increase your monthly contributions to maximize the employer match
- Review your plan’s documentation, such as the “Your contributions explained” document, to understand the employer contribution rules
By maximizing your employer pension contributions, you can significantly increase your pension pot and make your pension last longer.
3 things you can do to make your pension savings last
You can’t predict how long your retirement will last, but you can take a few steps to try to ensure you don’t completely drain your funds.
One way to ensure your money lasts longer is to take advantage of the tax free lump sum option, which allows you to withdraw up to 25% of your pension pot without paying tax.
1. Start saving early
It’s a well-worn truism, but the earlier you start saving for your retirement, the better. Building up your fund over 40 years gives you the best chance of hitting your target.
2. Make sure you’re on track
For a couple, you’d need £376,700 in your private pensions to reach the Pensions and Lifetime Savings Association’s ‘moderate’ living standard of £43,100 a year via pension drawdown.
3. Work for longer or go part-time
A phased retirement will mean you’ll still have income from employment to meet some expenses.
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