Should you ease into retirement?

Pensioners are now enjoying a state pension that thanks to the triple lock rules is 8.5% higher than last tax year. 

Unfortunately, the boost is barely enough to keep pace with inflation, and private pensions have not enjoyed a similar hike.

Retirement is becoming more expensive. And with income tax thresholds still frozen, fiscal drag is conspiring with inflation to reduce the spending power of your pension pot even further.

Research from the Pension and Lifetime Savings Association (PLSA) revealed that a single person will need an annual retirement income of £43,100 to enjoy a comfortable standard of living. A couple will need £59,000.

Some of those who thought work was behind them are finding it hard to manage and are having to ‘unretire’. 

Going back to work rather than enjoying your leisure is not a prospect that many of us relish. Unless you are someone with recognised and valuable skills, getting back into the workplace may mean doing work you don’t like much.

But there might be an alternative. Rather than stopping work altogether, you may be able to ease into retirement, cutting down your hours while keeping money coming in and your pension pot growing. 

Continuing your career and using the skills and knowledge you have built over a lifetime can be much more rewarding, financially as well as in terms of job satisfaction.

The financial advantage of easing into a life of leisure

If you continue working and not touch your pension for a number of years, the effects of further contributions and compound investment growth can potentially mean your pension pot is substantially larger. Recent research from Standard Life suggests working three days a week between the ages of 66 and 69 could increase the size of your pension pot by around 16%, according to the pension company’s calculations. 

Standard Life suggest that an employee who started their career on a £25,000 salary at age of 22 and with 3.5% salary growth each year could expect to build a pension pot of around £434,000 by the time they reach retirement age, with monthly employee contributions of 5% boosted by employer contributions of 3%.

By extending their working life by three years, working three days a week until age 69, they could add an additional £71,000 to their pension pot. By doing this for five years, they could add an additional £125,000. 

Not many people will want to work a full decade after hitting retirement age but, if you are willing to work until you are 76, you could increase your pot by an average of £283,000 – and all while taking a salary in the meantime. 

The advantages don’t stop there

The traditional pattern of retirement, where one week you spend 40 hours in a busy office with phones, screens and people and the next with four walls and a spot of gardening can come as a shock to the system.

Unless you have planned your retirement, you can find yourself bored, and there are some studies that suggest that reduced activity may lead to physical as well as mental decline.

Easing into retirement may help you build the skills you need to retire and discover the hobbies and activities that you might spend the next 30 years doing.

Getting some help with your decision

If you think you could end up going part-time after reaching retirement age, it is important to plan ahead. Starting to dip into your pension pot before you fully retire means triggering the money purchase annual allowance.

Once the money purchase annual allowance has kicked in, you can only contribute up to £10,000 to your pension each year tax-free (as opposed to the usual £60,000). This means you could miss out on valuable pension contributions from HMRC. 

It means part-time work needs to be part of your retirement strategy rather than being a desperate afterthought.

To plan your retirement, part time or otherwise, you might be better off with some expert advice to develop a strategy that avoids tax traps like these.

To discuss part retirement, or any aspect of pension planning, simply call us today.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment or retirement strategy, you should seek independent financial advice before embarking on any course of action.

A pension is a long-term investment; the fund value can go down as well as up and this can impact the level of pension benefits available. Pension Income could also be affected by interest rates at the time benefits are taken.

Pension savings are at risk of being eroded by inflation.

The Financial Conduct Authority does not regulate taxation advice.

The tax treatment of pensions in general and tax implications of pension withdrawals will be based on individual circumstances, tax legislation and regulation, which are subject to change in the future

Rounding up pension boost | Standard Life

The cost of a decent retirement is rising – how much do you need? | MoneyWeek

Role of Physical Activity on Mental Health and Well-Being: A Review – PMC (

Should you ease into retirement with part-time work? | MoneyWeek

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