Overview
These days retirement is a nebulous concept. It’s not always obvious where work ends and retirement begins. There’s no longer a default retirement age and employees can request flexible working. These changes have led to a more fluid, progressive concept of retirement. Yet there is usually a sign that the retirement process has begun. A change that signals a new phase has started that will lead to outright retirement.
Planning to retire?
Employees can take many different routes to this new flexible approach to retirement:
- Working full time beyond State Pension age.
- Moving to part time work or a less well-paid role.
- Leaving full time employment to become self-employed.
- Setting up a company.
- Retiring outright, then subsequently returning to the workplace.
It may be argued that starting a business or becoming self-employed isn’t retirement. But when someone chooses this route later in life, it can be a catalyst made possible because they have access to pension savings, if necessary. It often heralds the beginning of a new journey characterised by self-fulfilment, a better work/life balance and greater control.
Benefits of retiring in instalments
This more fluid approach to retirement may be motivated by a need to boost retirement savings or it could be symptomatic of other issues. Perhaps to maintain the social benefits that work brings and stave off loneliness. It may be a desire to stay active mentally and/or physically or to continue to enjoy the status and self-esteem that work often confers. For some, it may simply be the love of a job they’ve enjoyed doing over the years. Others might relish the opportunity to become their own boss.
Implications of the new approach to retirement
There are a number of issues for employees to consider when contemplating a more flexible approach to retirement. For example:
- There could be a shortfall in income when reducing their working hours or taking on a less demanding role. This may mean they need to use other sources of income, including pensions, to make up the difference. Choosing how to make up any income shortfall can impact someone’s tax position and affect their ability to continue to contribute to their pension in the future.
- Some may choose to do their own thing by starting a limited company or becoming self-employed. This can introduce additional considerations. For example, where a company is formed, the interplay between taking income as salary and dividends. The right mix of income will depend on individual circumstances but does add further complexity.
- Returning to work after retirement can also bring a different set of issues. This includes when should someone be auto enrolled into the pension scheme and what options they have if they’ve started to draw on their pension savings. For example, can they, or should they, stop taking any withdrawals or income from any private pension or State Pension?
There’s more information on the factors to take into account in our report The Changing Face of Retirement.
Helping your employees retire gradually
There are actions you can take to help your colleagues’ transition towards retirement and support the organisation’s manpower planning:
- Understand the impact. Hold open discussions with employees to understand who may be approaching retirement in the next five years. There is no longer a default retirement age, but more people retire around or near to the State Pension age than at any other age1. Understanding how many employees are likely to retire, and which roles will be affected, can help the company plan for the future.
- Encourage openness. Employees may be reluctant to open up about their future plans for fear of being overlooked for promotion, given reduced responsibility and/or less interesting work. Allay these fears and create an environment where employees aren’t backward in coming forward with their retirement plans.
- Assessing benefits. Evaluate the benefits package for employees approaching retirement. Do these benefits help the transition to retirement? If not, how could the organisation do better? Do the company support employees who reduce their working hours or responsibilities as they near retirement?
- Educating employees. Boost employee confidence with education programmes that support retirement planning. At Fidelity, we offer a webinar programme which can help employees to get more out of their workplace pension, understand the world of investing, and enhance financial wellbeing and confidence. Our experts provide tips and tools to develop better financial habits. Explain how the company can help them achieve their objectives after they leave the workplace.
Summary
The trend towards a more flexible approach to retirement has significant implications for employers. Resource planning is more difficult if companies can’t accurately forecast when employees will leave the workplace. Employers should embrace this transformation and develop policies that accommodate the changing face of retirement. This will benefit the company and help to attract and retain talent. What’s more, manpower planning will be smoother if the company create an environment where employees openly discuss their future plans.