Flexi-retirement – what you need to know

66% of retirees we spoke to plan to do some form of work in retirement. And the numbers planning to continue working in retirement are increasing year on year. So what’s behind the increasing popularity of so-called flexi-retirement?

• Mental health benefits

  The social connections, purpose and structure work can add to life

• Extra cash

  A way to boost retirement income as the cost of living rises

• Early retirement

A desire to retire earlier than current retirement savings allow

Flexi- or semi-retirement generally means you continue to work in some form, while taking income from pensions, savings, or the state pension to make up your total income.

You might stay with your current company with reduced hours or in a different role, take a new part-time role or do something altogether different.

Flexi-retirement can begin at any age you choose. You don’t have to wait until state pension age.

You can ask your current employer to reduce your hours or work flexibly. However, although they must consider your request, they can also refuse it. 

Remember that if you’re cutting your working hours, this could affect how much is paid by you and your employer into any workplace pension you have. So it’s worth checking with your employer to understand how it could affect your pension contributions.

You can usually take income from any personal or workplace pension while you’re working – although in most cases you need to be 55 before you can access money from a pension.

Bear in mind that if you’re taking income from a pension, the amount of further contributions you’re able to make to that pension could fall from £40,000 each tax year to just £4,000. So you might want to consider getting advice before you decide to start taking income from your pension.

Find out how our financial planning services could help you.

If you’ve reached state pension age and are continuing to work, you can still get your state pension.

If you don’t need the income now, you could delay taking it, which could give you a higher weekly income later. But while you’ll receive more income each week when you do start to take it, you’ll be giving up nearly £10,000 each year. So you’ll need to receive the state pension for a considerable amount of time - 10 to 17 years according to Which? - to be better off.

Work in retirement could mean you don’t need to take as much income from any pensions you have.

Delaying when you take money from your pension savings means you’re invested for longer, which could give you a bigger pot when you do. You can also carry on saving into your pension and earn tax relief.

It’s important to keep your pension provider up to date with your plans. If the retirement age they have for you is wrong, your money may be automatically moved into lower-risk investments which offer less opportunity for higher growth.

It's worth checking how your pension is invested to make sure that it's working effectively for you. If you aren't sure, our financial planning services could help.

With a defined benefit pension (also called a final salary pension), when you retire, you receive a guaranteed amount each year until you die. This amount usually increases each year to account for inflation. And the amount you receive isn’t dependent on investment performance or how much you’ve paid in. It’s usually based on how long you’ve worked for your employer and your salary.

Defined benefit pensions, even small amounts, can be incredibly valuable because they give you a guaranteed income throughout your entire retirement without the money running out.

Delaying when you take a defined benefit pension isn’t usually beneficial because it may not make a difference to the amount you’ll get.

Your defined benefit pension will have rules that show when you stop benefiting from increases to your pension amount. You can contact the pension administrator to understand more.

When you reach state pension age, you no longer need to make National Insurance contributions. If you’re continuing to work past this age, it’s worth checking to make sure they’re no longer taken from your pay. You’ll need to provide proof of your age to your employer if they don’t already have this.

If you’re self-employed, you may still have to make contributions in the first year you reach state pension age.

Even when you’re retired, you’ll continue to pay tax on any income that’s over your personal annual allowance. This includes:

• Income from any work you’re paid for
• Income you receive from the state pension
• Income you’re taking from any personal or workplace pensions

How much tax you’ll pay may influence how much paid work you choose to do. For example, if you’re looking to supplement your retirement income, the income you receive might take you over your annual personal allowance or push you into a higher tax bracket. This could mean paying more tax and not getting as much of the additional income as you’d hoped.

Careful tax planning in retirement is essential – how and when you take your income can affect how much of your hard-earned money you pay in tax, as well as how much you get.