Phased retirement is when an employee transitions into retirement by gradually reducing their working hours. It means they can continue to earn an income while slowly adjusting to stopping work altogether.

As you near retirement, you may be looking forward to taking your foot off the throttle to enjoy a more relaxing lifestyle. You may want to spend more time doing the things you love, like hobbies, holidays and enjoying time with family and friends.

But, at the same time, you might not be ready to give up work entirely. This could be for financial reasons, or you may be feeling apprehensive about what a life without work will look like for you.

If this sounds familiar, you might want to consider a phased retirement.

Boost your monthly pension with a part-time salary

What is a phased retirement?

A phased retirement is when an employer allows a full-time employee to gradually reduce the number of hours they work over a number of months or years in return for a reduced salary.

Alternatively, a company might seek to hire retired (or semi-retired) people with the right set of skills and experience from outside the business, placing them in part-time or temporary positions.

Benefits of phased retirement for retirees

There are clear financial and mental health benefits to remaining in the workplace past retirement age.

It boosts your pension pot

You may want to retire early, but worry whether or not the size of your pension pot will see you through for the next three or four decades. A phased approach means you can continue to boost your monthly pension with a part-time salary, without compromising on your lifestyle during the later years of your retirement.

Similarly, if your pension pot isn’t quite what you had hoped for, you can carry on working to reduce the amount you draw down from your pension in the early years, leaving more for the future.

It helps you maintain a sense of purpose

Many people don’t want to give up work entirely because they feel they’ll be bored or fear becoming irrelevant. These feelings can trigger depression, anxiety, and a sense of loss.

With improved lifestyles and healthcare, many of us are staying fitter for longer. That often means we’re not ready to retire in our 60s – but we would like more choice about how and when we work. If you’re still motivated by work and have concerns about losing your sense of purpose when it ends, a phased retirement may be an option you should explore with your employer.

Why your employer might welcome a phased retirement

There are several reasons why employers also benefit from phasing the departure of their experienced workforce, as they approach or reach retirement.

It stops the ‘brain drain’

Phased retirement enables employers to hold onto staff with valuable expertise. Retirees can mentor current employees to pass on the knowledge they’ve built up. As well as helping with succession planning, it’s a great way to upskill less experienced staff, giving them the skills they need to take on a more senior role.

It improves employee morale

Allowing employees to switch to a part-time position in their current or similar role will reinvigorate their contribution to the company by giving them a continued sense of purpose. This, in turn, can have a positive effect on other employees.

Of course, they will continue to benefit and learn from the older person’s experience. But just as importantly, they will see their employer is ready to adapt to its employees’ needs and is committed to building a diversified, flexible workplace.

It reduces costs

Phased retirement may allow department heads to better manage or even reduce their payroll costs during the transition. Retaining experienced employees, even part-time, is generally more cost-effective than recruiting new employees. It costs more to hire and train new employees than to keep existing talent within the business – even part-time.

Start the conversation with your employer before you retire

Drawbacks of a phased retirement

If you opt for a phased retirement, you’ll need to be able to cope financially with a reduced salary. Hopefully, your pension pot will help compensate for your reduced earnings, but you will still have to cover the costs of commuting, alongside other typical work-related costs.

There may also be some reluctance from your employer. For example, they may be put off by the cost of maintaining your employee benefits, such as death in service insurance and private health cover, which may become increasingly expensive compared to what it would be for a younger employee. However, this isn’t always the case – especially for larger organisations where higher costs are likely to be easily absorbed, or where schemes are priced on a per-employee basis.

Tips for asking for a phased retirement

Your employer may already have a formal strategy for phased retirement. If it doesn’t, you can still ask them whether it’s something they would consider. Here are a few tips to think about before approaching your employer:

  • Start the conversation well before you retire. Don’t wait until the last minute. And include all appropriate parties, including human resources and your direct manager.
  • Focus on the benefits to your employer. Positioning your phased retirement as beneficial to your employer, rather than just yourself, will help them buy into the idea.
  • Explore different options. This could mean working every day but reducing your hours, redistributing your tasks across the team, or sharing your role with another part-time employee.
  • Think about how technology can help. For many people, working from home has become the norm. If your role is compatible with home working, explain how you will be able to use technology to allow you to Set new goals.
  • Create new goals and objectives to define your new role as an experienced part-time employee. Use these to help you present your request to your employer as mutually beneficial.

Amber River Financial Planning

If your employer is open to the idea and allows you to phase your retirement, it’s a good idea to discuss your options with a financial planner. They will help you discover how to manage your income alongside your existing pension pot, as you’ll need to ensure your finances will meet your future needs.

Get in touch

To speak to one of our team, arrange an appointment or find out more, call 0800 915 0000, or alternatively use our contact form here.