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Your retirement

Retirement planning has changed dramatically and people have more freedom and choice.

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Five reasons to consider phased retirement

Monday, February 15, 2016

As people are living longer and employers are now legally obliged to consider requests for flexible employment, phasing in retirement is becoming increasingly appealing to both employees and their bosses. Personal finance and employment experts look at the benefits.

1. Psychological benefits

It eases you in

While retirement appeals to many people reaching the end of their working lives, others may want to carry on –( at least for a while).

Phased retirement, or the reduction in the number of days or hours worked, is a key retirement solution, as it prevents a dramatic lifestyle change, comments Tim Middleton, the Pensions Management Institute’s technical consultant.

“It avoids a cliff-edge retirement, which takes people straight away from full-time employment to permanent retirement, allowing them to phase into a different lifestyle,” he says.

“While retirement can be very positive, you may miss your colleagues and having a purpose,” he explains. “Phased retirement gives you a social aspect and an intellectual challenge. Hopefully, you will have built up interests and activities by the time you completely finish work.”

Last August, Geoff Abrahams, the chief operating officer for an educational charity, reduced his week from five days to four and believes this helped him adjust mentally.

“It would have been quite difficult psychologically for me to go from working five long days to zero,” he says.

2. Health benefits

It enables a better work-life balance

Abrahams, now 61, wants to be able to enjoy his later years.

“You never know what’s round the corner and if there’s an opportunity where you can take it a little bit easier and be healthy enough to enjoy the retirement, that’s an advantage,” he says. “I’m fairly active; I have hobbies and I want to enjoy them.”

Employers are now obliged to give careful consideration to a flexible work request to every staff member, but their decision depends on a number of factors, including the size of the company and the nature of the role and they have no obligation to agree to it.

3. Reducing the pressure

It is more manageable

While many people like the idea of continuing to work past the traditional age of retirement, they might not want or be able to do it to the same degree as before.

“They may find the pressures of full-time employment too tiring, so phased retirement might be helpful,” says Middleton.

“If you are in a relatively pressurised job, cutting down your hours can hopefully also reduce the pressures,” Cotton adds. “The problem comes if you try to do what you used to, but cram it into three days.”

4. Work and save

Pension contributions can continue

It is possible for a person to contribute to their pension while benefiting from it, says Middleton, although he recommends that people familiarise themselves with their retirement income options first.

“It’s an example of the flexibility of pensions, so people could continue to be paid a salary and contribute to their pension at the same time as drawing benefits from it.”

Cotton says that some people, depending on their type of pension, might be able to scale down their hours without reducing their benefit, while others might want to continue working to boost their pension during a downturn.

“If a person was coming up to retirement and their pension pot had dropped a bit, they could carry on working reduced hours,” he explains. “Then, in 18 months or two years, the stock market might have increased again and the pension pot might be back to where it was.”

5. Mutual benefit

A lower cost for the company

Phased retirement could even reduce the possibility of being made redundant if a company needed to save money.

“If the option of working fewer days a week represents the difference between being too expensive to keep on an employee or not, then that’s clearly an advantage for both the employer and the employee,” says Middleton.

Could it be right for you?

Although phased retirement is not applicable to everyone, it could be a solution to your retirement problems, as it offers benefits and, due to the UK’s ageing population, is likely to become more common.



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