Phased retirement is not the end of a working life – more a bend in the road for many workers Ben White

Less stress, more productivity. Lower costs,  better long-term staff retention. The phased retirement benefits for SME employers are clear. But what is phased retirement, exactly?

In a nutshell it’s when employees gradually step away from the workplace in stages. This allows a company time to find a replacement. Or possibly restructure their role.

The AdviceBridge team believes employers can, with the right support, manage and support these opportunities both for the well-being of your staff and your business.

  • Phased retirement options may save a company money. Government research (2010) estimated that the average cost of recruiting and training new staff could be as much as £6000
  • If more older workers are retained or move to a new type of work with their current employer, there would be significant savings in recruitment and training costs,” the report said
  • It may allow an employee to take a measure of traditional retirement benefits while exploring part-time work roles. Perhaps roles that are completely different to their existing one

Properly prepared for all weathers – part-retirement may widen life-balance opportunities  Alain Wong

Phased retirement is not just for a lucky few

Phased retirement options are considered a pragmatic response by many HR departments across a broad spread of industry. Longer life spans and better health makes phased retirement highly practical, especially as more of us take responsibility for our financial future.

  • For many phased retirement is about working more effectively and more productively
  • Which might mean working for longer – at the right pace for your employee (which means keeping talent meaningfully for longer, often)
  • The trend to phased retirement has trickled down from partners in law firms – for example – to the working population generally.

Many pension companies are seeing more people take phased income from their pensions in response to their circumstances – part-time working is very much the ‘new normal’ for older people.

Although phased retirement is about working fewer hours, it does not have to mean doing less. Staff might do more of something else instead. For example, an experienced factory floor manager working five days per week might become a project manager working three days per week.

What are the main benefits for employees?

  • Phased retirement can be highly tax-efficient for your staff. Done well it enables staff to have more control over their longer-term pension income
  • This can demonstrate the value of an employer’s pension contribution – especially useful if generous
  • It shows staff that a reliable and structured program can be relied on. They do not have to spend time researching the options
  • Staff can continue to work and enjoy their role but at a pace they prefer – perhaps right up to the ‘traditional’ retirement age

Working life change doesn’t have to be a huge leap – with the right support Dennis Olsen

Who does phased retirement fit best?

Phased retirement is definitely for people who enjoy their work and want to continue working – but with a reduced daily commitment. It may allow a flexible pension income to be taken while remaining in work, in the right financial circumstances and for the right person.

The portion of an employee’s fund not used can then be invested tax efficiently.

However taking benefits before the traditional retirement age may undermine the financial position of some. For many lower-paid or manual labour workers, phased retirement options may not be possible. Much depends on their own circumstances.

It may not be an option for many low-paid women employees, particularly.

The onus is on individuals to take responsibility for their future through a working life ᴠɪᴋᴛᴏʀ ꜰᴏʀɢᴀcs 👻

The non-financial reasons – staff health, for example – are compelling

The non-financial benefits are clear. “Evidence shows that it [working longer] gives people increased resilience in later life and those in employment perform best on almost every measure of cognitive function,” says a Government Office for Science report.

It added: “Studies have found that working can have health benefits, particularly for people with mental health issues”.

  • For older workers who possess industry-specific knowledge and experience – not to mention wide networks – phased retirement has clear employer benefits
  • A new hire, in contrast, takes time to accumulate job depth experience
  • Low levels of unemployment, helped by rising self-employment and ‘flexible working’, continue to heighten employer labour shortage risk

Phased retirement is financially flexible

  • How so? Well, the UK pensions landscape changed dramatically on 6 April 2015. This was when old annuity rules were scrapped, saving many UK pensioners from being tied to low payouts for life (once a contract commenced it could not be cancelled).
  • This move was a large transfer of power from pension companies to working people. In turn, this made planning around flexible working more practical and ‘do-able’
  • However the change raised the risk of financial mistakes. Many more individuals were in need of responsible, cost-efficient guidance
  • The credit for ‘pensions freedom’ was largely attributed to ex-chancellor George Osborne. The move, in fact, had been in the works for some time. Financial Secretary to the Treasury, Mark Hoban, indicated the switch in 2010, subject to a minimum income requirement

Workplace discussions around phased retirement options are best planned well in advance Metin Ozer

Help staff learn their financial facts sooner not later

Most employee retirement worry comes down to one thing: do I have enough money to last my whole retirement? However, encouraging employees to discover their phased retirement options helps to manage this worry.

Much of their anxiety around phased retirement is the fear of the unknown. Or not having enough facts to hand. But once they do, they’re in the driving seat.

  • Some employers think phased retirement as being mostly about reduced hours
  • This is not always practical for workers who need to earn a certain income cautions Patrick Thomson, senior program manager at the Centre for Ageing Better
  • “Better matching roles to workers,” he told AdviceBridge, “having open conversations about job design, rather than reducing hours, can also be an effective solution for employees who wish to transition into retirement. It comes down to planning an arrangement that works for the individual”

Preparation and a plan is key for phased retirement – for both employer and employee Startaê Team

Key preparation advice for employers

  • Know your audience – consider the phased retirement purpose and intended outcomes
  • There is no ‘one size fits all’ for delivery – whether by telephone consultations, face-to-face, group sessions or online tools
  • Do keep the content highly focused – prioritisation is important to maintain focus, clarity of purpose and engagement. You won’t be able to cover everything at the first meeting

Phased retirement options can be hampered by a lack of awareness but this is improving. Unlocking the perception of phased retirement will take time and preparation. Those who plan will allow their staff to thrive from the new opportunities it offers as well as supporting their transition to ultimate retirement.

The AdviceBridge Team believes this transition is here to stay. Let’s work to make the most of it.