Remaining in employment for an extra year could boost a typical retirement income by 16 per cent and help potential early retirees cope with the cost-of-living crisis, according to Aegon.

Aegon has calculated that an employee aged 60 with a pension of £200,000, could receive a retirement income of around £4,900 per year — based on an average figure of the top three annuity rates from the MoneyHelper annuity comparison tool.

However, deferring retirement for one year and continuing workplace pension contributions of £200 a month could mean the pension pot grows to £211,000, assuming investment growth of 4.25 per cent, after charges.

With one less year of retirement to spread the fund over, this could provide an income of around £5,700 per year, which is 16 per cent higher.

Using the same assumptions, the same individual could gain a yearly income of around £6,900 — an additional £2,000, or 41 per cent higher, should they delay retirement by three years.

Pushing retirement out by five years could mean that an annuity would be 73 per cent higher, with a pot reaching £259,600 and yielding a yearly income of around £8,500.

ONS data has shown that large swathes of the over-50 population have left the workforce since the start of the Covid-19 crisis, with retirement the overwhelming reason behind their decision.

Aegon research from December last year estimated that a quarter (25 per cent) of people had changed their plans for retirement since the pandemic and around 1 in 7 (15 per cent) had considered accessing, or had already accessed, their pension savings earlier than planned.

Aegon pensions director, Steven Cameron, said that soaring inflation has led to many early pandemic retirees relying on fixed incomes that are now under huge pressures as their purchasing power tumbles. At the same time, those drawing down their pension pots are at risk of depleting their savings earlier than planned.

“While some may not have the choice, individuals considering their future retirement options should consider the benefit of remaining in some form of employment," he said.

"Not only can employment offer a sense of purpose, but the financial benefits extend beyond maintaining your current income to increasing your future retirement income as well. This is due to the triple boost to your pension from continued investment returns on your pension pot, further pension contributions from you and your employer, and fewer years to spread the fund over once retired.”

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