Early retirement ‘slashing income levels’

The minister for pensions said: “We want to keep people well and living independently for as long as possible, and working longer is one way for people to ensure they have a healthier future with adequate income in retirement.”

Government figures show that out of 10.2m people aged between 50 and state pension age, 2.9m – 28 per cent – are out of work. More than half of men and women have already stopped working by the year before they reach state pension age.

Mr Webb said: “We are living longer and can expect many more years of healthy life. But despite this, too many people are leaving work prematurely.”

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A 28-page document published by the department for work and pensions, entitled Fuller Working Lives: A Framework For Action, revealed that between 2008 and 2010, a third of people aged 50 to state pension age stopped working and saw their overall household income immediately drop by more than half.

“There is also a loss of potential workplace pension income because those leaving the labour market early stop paying in, and their former employer stops contributing, too,” the report states.

According to the report, there are approximately 12m adults below state pension age heading towards inadequate retirement income, and roughly 40 per cent are expected to spend less than 35 years in work.

Mr Webb said: “Retiring before state pension age can substantially reduce private pension savings, spreading a smaller pension pot over a longer retirement, and could mean receiving less than the full state pension amount.”

The publication called on businesses to help people work until pension age, and offer more support to keep them in work.

Adviser view

Jeremy Phelps, financial planner at the Wales-based Financial Solutions, said: “There is a lack of understanding by people on how they will manage their finances in retirement, but auto-enrolment will help people. I think it is all positive – the pensions consultation and guidance should empower people with a better understanding of the new rules and help them prepare for retirement.”