17 September 2024
general
A phased retirement is becoming a more popular choice for people in the UK. While just 17% of current retirees have chosen this path, Standard Life reports that 47% of workers aged 18 to 24 intend to work part-time when they reach retirement age rather than take a traditional “hard stop”.
The most suitable way to finish working and start the next chapter of your life will be unique to you. But understanding the benefits of different approaches can help you make an informed decision about your post-work years.
Read on to find out some of the benefits of a phased retirement that you might not have considered before, to help you reflect on whether this might be an appropriate choice for you.
1. Your earnings could help you increase the value of your pension pot
One of the most obvious benefits of continuing to work part-time into your retirement is the boost this could offer to your income and pension. But you may not have realised quite how substantial this could be.
Standard Life has reported that working one day a week from age 66 to 70 could add an additional £81,000 to your pension pot, while three days a week could add £97,000 to your pot. This is down to a combination of your own contributions, any employer-matched contributions you may receive, tax relief, and investment growth over this period.
If you would like to continue contributing to your pension after you have started taking a flexible income from it, you may be subject to the Money Purchase Annual Allowance (MPAA). The MPAA reduces the amount you can contribute tax-efficiently to your pot to £10,000 in 2024/25. If you exceed this, you may be liable for a tax charge.
But if you keep a close eye on your contributions and your allowances, you could grow your pension pot significantly by easing into retirement.
2. A phased retirement could help you to adjust to the emotional upheaval of finishing work
You may have been looking forward to your retirement for many years, but sometimes the change in lifestyle can be an upheaval. Without a full-time job requiring you to report in each day, you may find it challenging to adjust to the flexibility afforded you by retirement.
In the past, retirees had to adjust to this overnight. Now, phased retirement gives you the opportunity to slow the transition down to your own pace. Doing so could continue to provide a structure to your day and a sense of purpose, helping you to settle into the next chapter of your life more gently.
3. Staying in touch with your colleagues may be good for your mental health
One of the benefits of work is the social network it can create for you. By seeing your colleagues every day and working towards a common goal, you could maintain a network of support that is crucial for good health.
Without this regular contact with a supportive group of friends, you might be at risk of feeling lonely. Age UK reports that 1.4 million older people often feel lonely. Even more concerning is the finding that loneliness can put you at a higher risk of depression, heart disease, and stroke.
A phased retirement offers an opportunity to reduce your working hours while still maintaining regular contact with your colleagues. As well as keeping a support network around you, regular social contact could help reduce your risk of loneliness and associated mental health challenges.
So, a phased retirement could keep your mental health in good shape as you navigate the next chapter of your life.
Get in touch
A phased retirement offers a range of benefits, but it may not be suitable for everyone. To learn more about how we can support you in planning your dream retirement, please get in touch.
Email enquiries@jesellars.co.uk or call 01934 875 919 to speak to one of our advisers.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Workplace pensions are regulated by The Pension Regulator.
