Retirement now and later

The retirement market changed considerably in 2022, largely driven by market volatility and soaring inflation. Your retirement plan may have been knocked off its original course and require review.

The lessons learned about pensions in 2022 have been both surprising and sometimes alarming. Those stemming from the investment difficulties faced by multibillion-pound pension schemes in the wake of Kwasi Kwarteng’s ill-fated ‘mini-Budget’ garnered the most headlines, but there were others, similarly significant, which received less media attention.

Coming up to retirement

If you are close to the time when you draw your retirement benefits, then the performance of investment markets in 2022 has been a double-edged sword:

• Both share and bond markets have been volatile. This has made the year an uncomfortable ride for some retirees relying on pension fund withdrawals, particularly during the turbulence in UK markets which followed the mini-Budget. In recent years, fund withdrawals have become the main way in which income is taken from pension pots. If you choose this option, you need
  to accept it comes with investment risk, so ongoing investment advice is vital.
• One of the reasons for the popularity of fund withdrawals has been the historically low level of annuity rates. For example, at the beginning of 2022, the best fixed payment single life annuity rate for a 65-year-old was a shade under 5.0%. However, annuity rates have risen markedly in 2022, thanks to the sharp increases in government bond (gilt) yields. By mid-November, the same rate had risen by more than half, to just over 7.5%. Rates for younger ages have jumped proportionately by more.

The improvement in annuity rates is worth noting even if you are already making pension fund withdrawals. Now could be a good time to lock in a guaranteed lifetime income from part of your drawdown fund by buying an annuity.

Working for longer?

If retirement is some years away, recent research from the Office for National Statistics (ONS) could give you pause for thought about when you can afford to stop work. As the graph below shows, the working population aged 65 and over has rapidly recovered from the fall that occurred in the wake of the pandemic. About 11% of that age group are still working according to the latest ONS data. Predictably most are part time, but the hours are still considerable – at an average of 21.7 a week. A little over two thirds are payrolled employees, highlighting that a significant proportion of workers in this age group are self-employed.

The ONS research does not explain why more people were working beyond age 65, but there is at least one obvious cause. The state pension age has been 66 since October 2020, leaving anyone retiring at the traditional pension age of 65 with a 12-month income shortfall of £185 a week, based on the current state pension. State pension age is due to start increasing again in just over three years, with the two-year phasing in of age 67 beginning in April 2026.

The Financial Conduct Authority does not regulate tax advice. Tax treatment varies according to individual circumstances and is subject to change.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investing in shares should be regarded as a long-term investment and should fit with your overall attitude to risk and financial circumstances. Occupational pension schemes are regulated by
The Pensions Regulator.