The age-old practice of retiring at 65 is being supplanted by a lifestyle choice of phased retirement that brings a host of new financial considerations.
Will retiring from your full-time job mark the end of your career? Or will you travel the world as a ‘grey gapper’, before returning energised and refreshed for a fulfilling new phase of work well into your 70s? That’s the choice some of those in their 50s and early 60s now have.
The practice of an employee being pensioned off from full-time work and disappearing from the workplace is fast being replaced by phased retirement. Instead of working full-time until they leave on a full pension, older workers are scaling back their hours or taking on less demanding roles, thus extending their working lives for a decade or more.
Three in five UK workers intend to work past State Pension age, according to a recent study by Aegon, a life insurer: half of those polled expect to change the way they work, with only one in ten saying they will continue to work their existing hours.1
This gradual approach has big advantages, according to Tim Middleton, technical consultant at the Pensions Management Institute.
“It avoids a cliff-edge retirement, which takes people straight 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 the sense of purpose that work brings. Phased retirement gives a social aspect and an intellectual challenge."2
Undeniably, it is also a chance to break with decades of workplace routine. When she was made government champion for older workers in 2014, Ros Altmann backed ‘grey gappers’. Altmann argued that, as people enjoy longer lives, reaching 50 could become a natural trigger to take time out to “re-energise” and think, often on extended trips abroad. Altman believes that, as people begin to approach the traditional retirement age, the prospect of taking up a different job is an attractive one.3
All this reflects a huge generational shift in the face of factors such as the demise of the job for life, rising life expectancy and increases to the State Pension age. It’s also spurred by more enlightened organisational attitudes to job sharing and other forms of flexible working. There are also legislative changes which give us access to our pensions earlier. Self-employment, which has been enjoying an inexorable rise, is often the neatest way to step off the corporate treadmill while still earning an income.4 Plus, for some, there may be a yearning for greater workplace fulfilment, perhaps realising their dream to open an artisan bakery, buy a small vineyard in the South of France, or take up a voluntary role helping a local charity.
So, whereas previous generations had too little choice about how or when to retire, we now find ourselves beset by a host of consequential decisions. Do we ‘downshift’, taking on less responsibility, or do we stay in post but simply go part-time? When is the best time to take our pension; and do we take it all, or just part of it? Do we dip into our ISA savings first?
“Many people like the idea of working but not full-time, so the cliff face is being replaced by a glide path,” says Ian Price, divisional director at St. James’s Place. “This brings tricky decisions, such as whether to pay off the mortgage or help the children get on the property ladder, and when to start taking pensions. Financial advice on retirement planning is essential.”
An independent review of the State Pension chaired by John Cridland, former director-general of the Confederation of British Industry, looked at how we move away from full-time work. The government-sponsored review, Smoothing the Transition, was published in March and argued that additional flexibility at work is key to keeping people active for longer in the labour force. But it bemoaned the lack of structured advice: “We have noticed that there is often no natural trigger point… which may mean people consider their needs too late.”5
The study’s answer is that, alongside midlife health checks, the government should instigate a midlife MOT for each one of us. Organisations such as Age UK and Aviva are trialling midlife career reviews with employees, and the Cridland review recommends that these be incorporated into mainstream HR practice.6
Paradoxically, the shift to phased retirement is taking place at a time when longer life expectancy means larger retirement pots are required. And for all the talk of grey gappers returning for ‘encore careers’, it’s important to remember that financial necessity will drive many decisions. For the generation now contemplating retirement, the trick will be to make the new ‘fewer-hours-but-more-years’ approach to work meet both its financial needs and its wider hopes of personal fulfilment.
1. aegon.com, May 2016
2. lv.com, February 2016
3. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/411420/a-new-vision-for-older-workers.pdf, March 2015
4. ons.gov.uk, July 2016
5. gov.uk, March 2017
6. gov.uk, March 2017