We take pensions earliest in Europe - then carry on working

Britons take their pensions earlier than workers in other EU countries - but also work later into old age, research has found.

Experts said the findings served as a warning to savers who planned to plunder their pensions under the new retirement freedoms next year: take too much, too early and you could be forced to work longer - or to return to the office after retiring.

By contrast, patient savers who wait until age 65 should enjoy a richer old age, making it easier to retire fully at an earlier age, according to advice.

Where in Europe can you retire earliest?

The average British worker first accessed personal pension savings at the age of 58, according to research by The European Commission. In just a handful of eastern European countries did people take their pensions earlier (see table, below).

By contrast, Spanish workers accessed pensions at 62 on average - four years later than British employees. The gap was seven years in Norway and Iceland, where workers waited until they were 65.

Yet Britain also had a higher proportion, at 20pc, working past 65. In Spain the figure was just 5pc. The research did not specify whether people were working later in life out of choice or necessity.

The official figures suggested that British savers were making poor choices about using funds set aside for old age.

The figures, which relate to 2012, found that savers in Bulgaria, Poland and Slovenia took their pensions aged 57. In Greece and Italy it was 58, the same as Britain. French workers waited until 59 and Germans to 61.

As in Spain, just 5pc of French people aged 65 or over were still in work. In Ireland, 6.8pc of over-65s were still in the workplace. Just seven countries had a figure higher than Britain's 20pc.

^{British over-65s are working for longer than German, French and Italian people of the same age}

^{Source: The European Commission}

Pensions advice: 'Explore every alternative'

David Smith of financial advisers Tilney Bestinvest said: "The big difference between Britain and the rest of Europe is that we are a nation of home owners - and many people access pension savings early to pay off mortgages or other debt."

Currently, most savers are limited to accessing 25pc of their pension as a tax-free lump sum. The rest can be left untouched or used to provide an income. From April savers will be able to access their entire pensions from age 55.

Mr Smith said savers should explore "every possible alternative" before plundering pensions to pay off a mortgage.

"Your pension should be your last resort," he said. "Too many people think of their pension first, and then find the remaining money doesn't provide much old-age income. They either have to keep working or their savings run out too quickly."

Calculation: Why it pays to delay

Calculations by Patrick Connolly of Chase de Vere, the financial adviser, showed the impact of accessing pensions early.

Someone who left their pension invested until age 65, rather than accessing it at 58, would be £267,557 better off over the course of retirement, he found.

This was based on a 58-year-old man with £200,000 taking £18,000 a year immediately. Even if his investments grew by 5pc a year, his money would run out at the aged of 77. By then he would have collected a total of £312,013 from the pension pot.

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If he waited until age 65, working in the meantime and paying off debts and funding his lifestyle by other means, his pension would last until age 97. By that stage he would have taken £579,570 from the pot.

The benefits of delaying access were that he had extra time to build up a larger retirement fund.

Mr Connolly also compared the impact of taking the 25pc tax-free lump sum only at age 58. The initial withdrawal from a £200,000 pot would reduce the fund by £50,000. If the fund grew at 5pc for the next seven years it would be worth £211,065 by age 65. The saver could then obtain an income of £10,553 from an annuity.

If instead the saver resisted the temptation to withdraw a quarter of the money at age 58, he would have much more in the pot at age 60. By then the fund would have grown to £281,420. This could provide an income of £14,071 from an annuity. Over a 30-year retirement, until age 95, that would give him a total of £703,550 from the pension. By comparison, the saver who took a quarter of the pot at age 58 would have been paid a total of £577,655.

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