Royal London has argued the idea of a “flexible” retirement with a gradual reduction in working hours is unachievable unless increases in pension saving are accelerated.
Research by the provider suggests based on current contribution levels, employees may have to work into their seventies or eighties to provide a comfortable retirement.
Its analysis is based on individuals who save into a pension at the legal minimum and draw a state pension and reduce their hours to part-time as soon as they are able.
Royal London found those targeting a “gold standard” retirement, where retirement income is two-thirds of pre-retirement levels, would have to work until they are 79 before they can afford to retire, compared to a retirement age of 74 for someone who defers their state pensions and maintains full-time hours.
For those targeting a “silver standard” retirement, where income is half pre-retirement levels, they would have to work until age 69 if they chose to retire gradually.
For pensions linked to inflation or offered on a joint basis, the retirement age could climb into the eighties.
But Royal London says increasing the contribution rate from the minimum 8 per cent to 10 per cent would bring forward retirement ages by three years, and every 1 per cent increase in contributions would shave off a year of a person’s working life.
Royal London director of policy Steve Webb says: “A flexible retirement, where we can gradually reduce our hours and stop work at an acceptable age, is likely to be a mirage for millions of people based on current levels of saving.
“The good news is there is an antidote to excessive working lives and this is higher rates of pension contributions. We find that each 1 per cent on pension contribution rates takes at least one year off the number of years for which you have to work to achieve a decent retirement.
“These findings need to be considered carefully by the Government as it reviews the rules around automatic enrolment in 2017.”