Is 2022 the most challenging year to retire?

According to data published by the Office for National Statistics (ONS), the number of people aged 65 and over in employment increased by a record 173,000 to 1.468 million between April and June 2022. The ONS said this was driven by a 17.7% uptick in the older generation entering part-time work.

Tom Selby, Retirement Policy Head at AJ Bell, suggested in a Press Release, that the figures show that those who stopped working during the COVID-19 pandemic hoping their retirement pot and any other assets would be enough to live on have now found this impossible.

Mr Selby commented:

“We have seen the number of over-65s in the workforce surge by 174,000 this year, effectively reversing the 'great resignation' we saw during the pandemic and replacing it with a 'great unretirement'. Some retirees, such as those receiving public sector pensions, will be lucky enough to have inflation protection baked into their incomes, [but] many will not.”

In addition, Becky O'Connor, Pensions and Savings Head at interactive investor, said:

“During the pandemic, when savings were high and people were forced to stay at home, we saw many people bring forward decisions to give up work, because retiring early felt achievable. But now that inflation is rampant and stock market returns are volatile, the tables have turned, the retirement numbers don't quite add up and older people are taking a practical approach and returning to work in their droves.”

Is inflation costing you a comfortable retirement? Read our article here.

And it might not change any time soon…

According to the 10th annual Natixis Investment Managers' Global Retirement Index 2022, this year could prove to be the “most challenging year to retire in recent history”.

Retirement security in the UK has fallen for the fifth consecutive year, falling one place in the ranking to 19th out of 44, with an overall score of 69%, down from 72% in 2021's Index. The UK ranks 29th out of 44 for finances in retirement in the 2022 Index. Across the 18 performance indicators of retiree welfare examined, the Index revealed that Norway came in top with Switzerland second and Iceland third.

Commenting on the report, Andrew Benton, Head of Northern Europe at Natixis Investment Managers, said:

“While inflation has a negative impact on individuals, certain institutions may see an indirect benefit. Pensions generally perform better in inflationary times, as central banks implement interest rate hikes to curb inflation. This is because of the seesaw effect that rates have on pension liabilities. In simplest terms: the higher the rate, the lower the liabilities. Now with rates increasing, liabilities are shrinking for many. But not all pensions respond in equal measure. The maths on inflation ultimately works out for the better for private pensions. With inflation driving rates up and liabilities down, these managers generally see their contribution rate decline. On the public side of pensions, the maths may not be as advantageous.”

The future of retirement?

Lane Clark & Peacock LLP (LCP) has published new analysis in one of their LCP on point reports, entitled: “The flex first, fix later” pension — is this the future of retirement?" This would be a pension, where individuals start their retirement journey in drawdown, but automatically switch later to an annuity.

The analysis joins the growing debate as to whether or not annuities still have a role to play in retirement provision, especially for those later in retirement. One of the paper's principal findings is that for many people there may be an optimum age at which to move from drawdown to annuity, mainly because eliminating “longevity risk” through buying an annuity becomes more attractive at older ages.

There are many ways in which the ‘flex first, fix later’ concept could be shaped, but the basic idea of a later life move to reliance on an annuity is one which is finding favour across pension schemes and providers. The authors propose that this could be a new post-retirement ‘default journey’ for the unadvised mass market of people who had been auto-enrolled into workplace saving and now have to make choices about how to manage their retirement.

What type of pension is right for you? Read more here.

Here at The Private Office, our pension planning specialists can help you clearly understand your options and give pension advice that is suited to your circumstances and individual needs.

The information in this article is correct as of 26/10/2022.

Investment returns are not guaranteed, and you may get back less than you originally invested.