As businesses adapted, some employees found that the flexibility of remote working was a lifestyle change they wanted to keep long-term, and the rise in hybrid working began. This was particularly notable for older workers, and recent data from the Office for National Statistics (ONS) found that the proportion of workers aged 50-69 who work from home either full-time or part-time is 36% on average.
As one of the age groups with the highest rates of working from home, it offers workers aged 50-69 an adaptable way to balance work and their personal life. Yet, it could also pave the way for people to be able to work for longer too, potentially well beyond traditional retirement age – meaning more may be considering a phased approach to retirement.
Phased retirement allows individuals to gradually reduce their working hours, while continuing to receive a certain level of income and financial security as they transition into retirement.
Yet, it’s important to remember that this approach may not be for everyone, and retirement is not ‘one size fits all’. Advice can be invaluable while weighing up options.
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One of the main advantages of a phased retirement is the ability to still receive an income while reducing work hours gradually.
This flexibility enables the individual to continue topping up their pension pot, which may help them feel more financially secure in later life. Many people in their 50s and 60s worry they might not have enough saved for retirement and a phased retirement can help to bridge the gap.
However, this approach may not be suitable for all. The exact role carried out, or the industry someone works in, may be less flexible, meaning the transition to reduced hours, or part-time work, may be difficult to negotiate with an employer.
There may also be tax and benefits implications in choosing a phased approach. For example, if an individual works part-time and saves into a pension pot and decides to start taking money from their pension, they may have to start paying more tax on pension contributions.
Bridging the gap
People considering a phased retirement may look at other options to supplement their income, particularly in the years leading up to becoming eligible for the State Pension. A fixed-term annuity could be a great choice for people who want a guaranteed income while reducing their working hours.
An annuity is a financial product that gives a regular, guaranteed income, either for a specific period of time, or for the rest of your life, and people usually purchase one with money from their pension pot. You can only buy one when you’re 55 or older and once it’s set up you cannot make any changes to it.
Too often we see the conversation around the value of an annuity limited to the rates available, but the stability of a guaranteed income can give people peace of mind that their money won’t run out. It takes the guesswork out of budgeting and means people don’t have to spend time worrying about finances.
In this situation, for someone considering a phased retirement, a fixed-term annuity can be useful as it means a guaranteed income, no matter what someone’s working hours are.
The importance of financial advice
Ultimately, for anyone considering a phased approach to retirement, seeking advice or guidance can help decide the best course of action. Navigating pensions, the tax system, benefits and whether to get an annuity can feel overwhelming if you try and do it alone.
Getting an expert’s view gives you the best chance of choosing options tailored to your unique situation, helping you to evaluate which option is right for you so you.
Retirement is no longer one-size-fits-all and a phased retirement allows people an opportunity to work into their later years. It can also offer financial flexibility, so individuals can maintain the lifestyle they want while continuing to add to retirement savings.
As the workforce and working patterns continue to evolve, the future of retirement may look different. Yet, with the right support, older workers can not only adapt to these changes, but thrive in the world of hybrid working and phased retirement.
Lorna Shah is managing director of retail Retirement at L&G
