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Why are a third of baby boomers opting for phased retirement?

Baby boomers – those born between 1946 and 1964 – are likely to be approaching or already in retirement but nearly half (49%) of them are still working.


In fact, figures published in the Independent, confirm that 66% of all people entering retirement in 2022 won’t give up work completely and are choosing to phase their retirement. This is a rise from 56% in 2021 and 34% in 2020.

Retirees plan to work past 70

Research from Dunstan Thomas has found that those baby boomers who are still working plan to keep working.

Of those currently in employment, one-third will stay employed beyond the current State Pension Age of 66. On average, they will work for a further 4.3 years after their entitlement to the State Pension begins, taking them over age 70.

Among current employees, 23% intend to stay in a full-time role, while 47% will work part-time.

But why?

The cost of living crisis has had a bearing on retirement plans for some

As inflation continues to rise – the Office for National Statistics (ONS) confirms it reached 9% in April 2022 – the cost of living crisis is leaving millions of UK households struggling financially.

According to the Independent, nearly a third (31%) of those opting for phased retirement this year are doing so due to financial necessity.

Staying in work can be a great way to supplement a private pension or investment income, while still receiving a wage. It also leaves the potential for continued contributions into a workplace pension scheme.

Worryingly, of those planning on taking a phased retirement, 28% haven’t taken financial advice and a quarter are unaware of the potential tax implications.

There are two main tax issues to consider, and we can help individuals to understand both:

1. The Money Purchase Annual Allowance (MPAA)

There is a limit to the amount that can be paid into a pension each year while still receiving tax relief. This is the Annual Allowance and for the 2022/23 tax year, it stands at £40,000 (or 100% of your pensionable earnings, if lower).

For those who opt to withdraw pension benefits while continuing to work, the option you choose will need careful consideration.

Since the introduction of Pension Freedoms legislation, some flexible pension options trigger the MPAA. This reduces an individual’s Annual Allowance from £40,000 to just £4,000, and once triggered, it can’t be removed.

If you want to take pension benefits while continuing to work and contributing to your retirement fund, being aware of the MPAA is key.

2. Income Tax and the frozen Personal Allowance

An Income Tax liability occurs where the Personal Allowance is exceeded. The allowance is currently frozen at £12,570, with the higher and additional rates also frozen at £50,271 and £150,000, respectively.

Those who opt for a phased retirement must be aware that if they continue to work, even in a part-time capacity, their earnings could be subject to Income Tax. Not only that but pension withdrawals (outside of any tax-free cash entitlement) are also taxed as income.

As wages rise over the next few years, employment income could tip you into a higher tax bracket. Be careful too of taking large pension withdrawals in one go as you could find you pay more tax than you expected.

A third of baby boomers opting for phased retirement just want to keep busy

The Independent suggests that 32% of those opting for a phased retirement in 2022 plan to do so to keep busy.

Leaving a full-time career to enter full-time retirement can be daunting. This is especially true for those with busy, stressful roles, used to regular meetings and constant deadlines.

Many retirees wonder how they will fill their days. There’s also the worry that loneliness might strike, a larger issue if friends and former colleagues remain in full-time work.

Staying employed can be a great way to maintain a social life while beginning the transition into full retirement.

It can also provide an opportunity to give something back, either to a specific company, a sector, or your community. This might include:

  • Staying on with the same company in a training or consultancy role

  • Volunteering in the community, either in a familiar role and sector or by branching out into a new area.

Many retirees will have looked forward to their cliff-edge retirement date for years and have extensive plans and hobbies already lined up.

For others, long-held roles might represent a lifetime passion and phased retirement might be a good option.

Get in touch

If you have any concerns about your long-term financial plans or you’d like to discuss whether phased retirement might be an option for you, get in touch now. Email to find out how we can help.

Please note

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

This article should not be considered an offer of any security for sale. This article contains the opinions of the author but not necessarily Ermin Fosse and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed and has not been verified. It is strongly suggested that the reader should seek financial advice before acting on any matters raised herein. Errors and omissions excepted.

Please contact us before you invest / disinvest.

Ermin Fosse Financial Management LLP is authorised and regulated by the Financial Conduct Authority Financial Services Register No: 197438

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