The traditional view of retirement as a fixed end to working life has, in many ways, been upended by the pandemic. On the one hand, many people are now looking at how they can take flexible or early retirement so that they can enjoy their free time while they are young enough to do so. On the other, the complete cutting of ties from working life, and the purpose it brings, is not always desirable or practical.

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The burning question for those looking to adapt their retirement plans to accommodate a different arrangement with work is ‘can I afford to do so?’. In this article, we look at this question and consider a number of options available to approach flexible retirement planning.

Phased retirement

Phased retirement refers to an approach that gives people more flexibility in how they manage the transition from full-time work to retirement. This could be in the form of fewer working hours or responsibilities, creating a different role or working structure, or winding down a business. Whatever approach you take, it’s important to carefully consider how you will afford this change in lifestyle. Working with an independent financial adviser (IFA) can be hugely beneficial in outlining how and when you can access your pension savings and how to do so in the most tax-efficient manner.

Personal Pensions

Most personal pension schemes are set up with multiple flexible arrangements, so the payment of benefits can be staggered from the age of 55. By partially crystallising a personal pension, the pension holder can gradually cut back on their working hours and replace the associated loss in income.

There are a number of methods to take income from a personal pension, including drawdown, a pension commencement tax-free lump sum, buying into an annuity, or taking an uncrystallised funds lump sum. The adopted method will depend on individual circumstance. An IFA can outline how to take these funds in the most tax-efficient manner alongside your working income and personal allowances.

Occupational schemes

Occupational schemes do not generally provide as much flexibility in taking income as a personal pension. It is also important to consider that if you do draw down on a defined benefit pension scheme, there can be long-term implications. If an employee switches to phased retirement before their scheme’s normal pension age, their pension, and any lump sum that they are entitled to, is likely to be reduced.

This does not mean that taking from an occupational scheme is impossible or undesirable, but it depends on the individual circumstances. Working with an IFA to consider the full spectrum of your investment and income opportunities could avoid any unnecessary losses to your occupational pension.

Working with employers

Phased retirement options are still a relatively new consideration for businesses. However, with the recent increase in flexible and early retirement in the over 50s, businesses will be keen to retain vital skills, avoid challenging succession planning, while taking advantage of potential cost savings. It is certainly possible to change your working arrangement with an employer in a way that can work for both parties.

Business exit planning

Winding down or selling a business you have built up and invested in is a difficult prospect for any business owner. Yet, in all likelihood, the business will form an integral part of their retirement planning. There are effective and practical options available that can allow for a controlled winding down of your business or succession and exit plans, which can provide for your retirement and give you some well-earned free-time earlier than expected.

Deferring your State Pension

If you decide to continue to work full-time, or in a reduced capacity, beyond the state retirement age and your income covers your lifestyle, it may be worth deferring the State Pension. By deferring for at least 9 weeks, you will receive a higher weekly state pension when you do claim. If you defer for over 52 weeks, you can also choose to take this deferral as a lump-sum. As the state pension is taxable, deferral could prove a tax-efficient approach while you are still working and leave a larger weekly pay out for when you retire completely.

Is a flexible retirement becoming the new normal?

It’s difficult to say if the changes in retirement planning to a more flexible approach will continue in the years after the pandemic, but it appears likely. Planning a flexible retirement path has become normalised for those under 40 and with the increased options available in taking your pension, there is no reason this will not continue for those over 40 too. The key to achieving your ideal retirement is planning. Working with an IFA is the best route to finding the most efficient way your money can work towards your retirement goals.

PLEASE REMEMBER: Grosvenor Wealth Management Ltd is authorised and regulated by the Financial Conduct Authority. The value of investment can go down as well as up and you may not get back the original amount you invested. Tax treatment is dependent on individual circumstances and may be subject to change.

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