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Older workers just can't afford to retire

The number of older people starting their own business has rocketed as the cost of retirement increases.


by Michelle McGagh on Feb 13, 2013 at 14:17

Older workers just can't afford to retire

Retirement is becoming increasingly expensive as inflation continues to eat away at the value of savings, leading to a boom in the number of over-50s becoming their own boss.

The latest figures from the Office of National Statistics (ONS) show the number of people who are self-employed (as their main job) rose 367,000 between 2008 and 2012. Although the economic downturn has prompted more people to work for themselves, a staggering 84% of the rise is due to those over aged over 50 working for themselves.

According to the ONS the four most common occupations for self-employment at any age are taxi driver, construction trades, carpenters and joiners, and farmers.

This increase in self-employment can in part be put down to people losing their jobs in the economic downturn. But according to Malcolm McLean of pension consultancy Barnett Waddingham the boom is due to people not being able to afford to retire.

‘The considerable increase in over 50s who are becoming self-employed highlights the rise in the number of people who simply cannot afford to retire,’ he said.

Increasing cost of retirement

Retirement is expensive and for most people the state pension, although it is being increased to £144-a-week for everyone in 2017, will still not be enough to live on.

With inflation still at 2.7%, despite the Bank of England’s target being 2%, UK households collectively need to find an extra £17.7 billion a year to maintain the standard of living enjoyed 12 months ago, according to figures by MGM Advantage.

This means each household has to find another £678 a year to afford the same living standard they had last year. Data from the ONS shows that worker income has fallen 3% in real terms since 2009 as inflation has eaten away at small wage increases. Wage value peaked in 2009 but over the past three years inflation has left earnings at their lowest in real terms since 2003.

For those working it is hard enough to find the extra money but those in retirement have no way to increase their income.

Aston Goodey, distribution and marketing director at annuity provider MGM Advantage, said: ‘The hidden cost of inflation can have a devastating impact on retirees’ incomes, which are typically fixed…Over a typical 20 year retirement, people could easily see the real value of their income halve after inflation.’

Too late to save?

As a nation were simply not saving enough for retirement.

Research from Friends Life shows just 25% of over-50s felt that they had contributed enough to their pensions in their 20s, 30s, and 40s to be able to afford a comfortable retirement.  

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15 comments so far. Why not have your say?

Mike the red

Feb 13, 2013 at 15:21

What? "As a nation were simply not saving enough for retirement."

For the past 35 years I have saved in pensions ISAs and any other scheme that has been devised. My original pension projections based on my investment should have given me a retirement pension of £30k. However, Gordon Brown interferred with the dividends and then we had the great banking fiasco followed by the realisation that people are living longer (actuaries must be so engrossed with the figures to miss such an obvious point) and nowwe have the European directive equalising male and female, even though females have a longer life span.

The outcome of all this is that I have a personal pension of almost two thirds less, despite doing what has been suggested. OK I still have my ISAs but politicians & big business have sold us a pup and I am now in my 66th year, still working, depriving a younger person of my quite senior post.

It all sucks!

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Rob Walker

Feb 13, 2013 at 15:26

This article is crudely engineered to encourage investments in pensions. let's have a quick review.

1. People start their own businesses between 50 and 65-ish because they've been made redundant and no-one wants to employ them,. so they invest any spare cash in something that will keep an income going until the state pension age. What's the big deal there?

2. Anyone starting contributions into a pension after 50 - 'It's not too late' - would expect only a modest return on their contributions because the underlying advice is to steer clear of higher-yield riskier investments as one approaches retirement age.

3. A vast majority of us would like to boost their retirement income, we'd also like to stay happy and healthy. Unfortunately we also want to pay off the mortgage (a more urgent priority) pay for our kid's weddings, go on holiday and generally spend out on fun now, just in case we don't make it to 65.

These articles are cranked out on a weekly basis with the same hollow sentiment. It's just the usual trick to make us all anxious and depressed hoping that we'll all repent and become regular contributors to some loser pension fund.

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Feb 13, 2013 at 16:21

Gordon Brown's destructive hand will be around for decades yet and causing problems for generations.

He was though guided by his assistant Ed Balls we should all remember well lest we get taken in by Labour ever again.

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Feb 13, 2013 at 16:48

And anyway why not fund an ISA to retirement.

You can then buy an annuity if you want or just take the cash.

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David Phan

Feb 13, 2013 at 16:59


No tax relief in an ISA

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Feb 13, 2013 at 17:20

@ David Phan

But no tax on income derived from an ISA, unlike a pension plan

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Martin Drew

Feb 13, 2013 at 17:24

Rob Walker is 100% correct. If you get made redundant after 50 the chances of getting employment are very low and you still have 15 years to go to retirement, even if you actually want to retire.

The other news story trotted out day after day is of lonely pensioners. There are many people who live by themselves who actually prefer to go out to work rather than sit around on their own all day.

Personally I hate the idea of retirement, and don't quite understand where the concept came from. It is historically quite a recent phenomena and like many so called advances I find it a bit suspect.

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Feb 13, 2013 at 17:24

David Phan - Lots of tax relief in an ISA. You just have to buy it with already-taxed money.

I set up my own business not because I couldn't afford to retire (I could), but because I wanted something to keep me occupied. I also got thoroughly fed up with filling in time-sheets and deleting the 59 internal e-mails that clogged up my in-box every day, and driving 30 miles to work and back and spending £35 a week on diesel.

Malcolm McLean is talking rubbish.

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Feb 13, 2013 at 18:55

No CGT on gains in a S&S ISA either - and 10k+ pa with gains and divis soon stacks up and as MO says, you're free to do with it what you will at any time.

SIPPs are flexible too, and you can control the investment, especially good if you can get your employer to match the contribution - not too difficult if you work within your own Ltd Co!

So you can keep eggs in different baskets and adjust to suit whichever political wind is blowing.

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Feb 13, 2013 at 19:21

I'm with the people who do not want to stop work fully, even if they can afford to. It makes no sense to me to be working flat out one day and be totally without work the next. A much longer gentler transition seems far more healthy if you are able to do it. Running your own business at whatever level works for you is quite liberating and you can plan to do other "non-work" activities as well.

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Michael Brooks

Feb 14, 2013 at 00:20

We all know there are not enough jobs to go around, but we are now faced with the spectre of people working into their 70`s, many because they have to, but nevertheless acting as `job blockers`. People who can afford to retire should do so, and take up a hobby or take an Open University degree to keep their minds active. However, all this may be academic, because unless we turf out this `amateur night` government, we are heading for an almighty train wreck.

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Kristine S-O

Feb 15, 2013 at 07:28

This boom in over 50s becoming their own boss could be because they have heard that self employed state pension contributions will contribute to getting the new much increased flat rate pension of £144 a week, whereas voluntary contributions will not? I had better get myself some business cards.

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Feb 16, 2013 at 17:09

Weather or not you want to work beyond state retirement age it would be nice to have the choice. How can you expect people to save for retirement when they see such poor returns? £100,000 of hard earned money will buy you £5,000 per annum (assuming annuity rates of 5% and no provision for spouse or inflation) for the rest of your life. Twenty years to get your money back if you’re lucky.

An interest only mortgage of 5% for the same amount will also generate payments of £5000 per annum for the term of the mortgage.

Consider a young couple struggling to buy a home because the banks want blood & wont lend the money despite the massive amounts received from the state.

Perhaps the government should allow me to use my pension pot to lend them the money? They get the home they want. I get my £5000 per annum and at the end of the mortgage term my pension pot is still intact (even though I won’t be).

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Ed the 5th

May 21, 2013 at 18:12

The income I take from one £7000 S&S ISA chosen by me, is more than the best annuity I was forced to buy by the Company Pension to which I contributed for 20 years.

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May 22, 2013 at 11:40

Something for Gonk:

Mr Brown, the subject of academic study at the Sorbonne.

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