Britons dream of retiring at 62... but think they will end up working five years longer: How to close the gap

Britons think they will have to work for more than five years past their desired retirement age, fresh research reveals.

Workers say they would like to retire just after turning 62, but expect they won’t be able to until almost age 68, according to a new study by the Standard Life Centre for the Future of Retirement.

In its poll of 6,000 Britons, it found a massive chasm between savers’ retirement dreams and reality due to financial pressures and the rising state pension age.

The age at which you start receiving the state pension began to rise again in April this year, and is slowly increasing from 66 to 67. It is due to rise to 68 between 2044 and 2046. 

It comes as the Prime Minister took the bold step to reveal plans to ditch the triple lock at the Labour Party conference last week, potentially making the state pension less generous.

Pension woes: Workers are worried they do not have enough set aside for their later life

Catherine Foot, director at the think tank, says: ‘The age people would ideally like to retire hasn’t changed, but the point at which they think they will actually be able to stop work is drifting further away.

‘That is happening as the state pension age itself begins its phased rise from 66 to 67, and against a backdrop of renewed pressure on household finances and a wider sense of economic and global uncertainty.

‘Together, these factors risk making retirement feel less certain and more distant, rather than a milestone people can plan towards with confidence.’

Almost two in three of those polled worry they are not saving enough for retirement. 

Renters face an even larger gap between expectation and reality of 6.8 years, according to Standard Life. 

That’s more than triple the 2.1-year gap for those who own their own home and an increase on the 5.7-year gap for people with a mortgage. 

There’s also a gender divide, as women have a 6.1-year gap while for men it’s just 4.5 years. This is because of the gender pay gap and the fact many women took time out to raise families, pausing their pension savings. 

But there are ways you can bolster your nest egg and retire as close to your dream age as possible. The earlier you start, the better.

How to close the retirement gap

One of the simplest ways to close the retirement gap is to start thinking seriously about retirement and planning for it.

Savers who plan for retirement have a gap of just 2.5 years, compared to 7.3 years for those who have done no planning, according to the report.

Planning for retirement could include thinking seriously about upping contributions to your workplace or personal pension, or calculating the amount you need to save for a comfortable retirement at your dream age.

Someone who starts work at 22 on a £30,000 salary could build a £252,000 pension pot by age 68, according to calculations by Standard Life.

This assumes they contribute 5 per cent of their salary, and their employer pays in 3 per cent, their salary grows by 3.5 per cent a year, and investments grow by 5 per cent. It also accounts for 2 per cent inflation.

But if they increased contributions by three percentage points, they could retire at 62 – the dream retirement age – with a £270,000 pot.

Foot adds: ‘The findings show a very clear relationship between planning and people’s retirement expectations, even among those on lower incomes. 

'Starting earlier, understanding what you already have and, where affordable, increasing pension contributions can make a meaningful difference. 

'For many people, relatively modest action now could help bring the retirement they want considerably closer.’

If your employer offers to match your pension contributions, this can be a fast track to a richer retirement. 

Your employer must contribute a minimum of 3 per cent of your salary to your pension, but some schemes go beyond this and will match your contributions up to a certain level. 

If you pay in 6 per cent of your salary, for example, some employers will match this, so a total of 12 per cent of your salary is paid into your pension each year. This is a valuable perk.

Tax relief will also do a lot of the heavy lifting if you’re in a hurry to boost your savings. If you are a basic-rate taxpayer, a £100 contribution into your pension will cost you just £80 because of tax relief. 

Higher-rate taxpayers need only pay £60 to make a £100 saving, and additional-rate payers contribute £55.

This is because basic-rate taxpayers get 20 per cent tax relief on payments. Higher and additional-rate taxpayers get relief at 40 and 45 per cent respectively.

If you are in a workplace pension, it’s likely your contributions will be deducted before tax is calculated. This means that you save on your tax bill as you didn’t need to pay tax on the amount you put into your pension.

If your pension scheme uses a so-called ‘relief at source’ system, then contributions are made after tax, but the amount handed over to HM Revenue and Customs is clawed back later.

This happens automatically for basic-rate taxpayers, but higher and additional-rate taxpayers will need to claim back their additional 20 and 25 per cent of tax relief from HMRC.

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