Chapters Financial News

The best laid retirement plans for many certainly hit some bumps in the road over the last three or so years. First there was the pandemic, and just as we all thought we might be 'out of the woods', a war and a possible recession (both in the UK and further afield) have delayed or adjusted the exit from work, in full or in part, making it a greater challenge.

The insurance firm Legal & General (L&G) carries out significant research into retirement trends, changes and figures in the UK. L&G's most recent work has focused on the topic of phased retirement and how the cost of living may affect the plans of those who intended to move into retirement gradually. The research makes for interesting reading and certainly confirms that people are not alone in facing additional financial headwinds in recent times. The Chancellor's changes to the HMRC Lifetime Allowance rules in March 2023 also bring the issues at hand for retirement planning into further focus.

This research was carried out in mid-October and the press release may be viewed here: https://group.legalandgeneral.com/media/ifyb0yf2/rr_phased-retirement-release_final-002.pdf

The study found that 3.3 million pre-retirees (34% of over-55s who are still working in some form) have started phasing into retirement by reducing their hours and responsibilities. 48% of employees aged 55 expect to take a phased approach to retirement rather than stopping completely.

The option to phase retirement, rather than ceasing abruptly on a set retirement date, has become easier over time, for example through the scrapping of the default retirement age of 65 in April 2011, and the introduction of pensions freedoms in 2016. Retirement is no longer a 'line in the sand', as the study notes.

L&G found that 37% of respondents were keen to take the phased retirement route by reducing their hours, in order to stay employed but reduce their stress. However, 44% of people noted that they are making the decision to phase retirement because they cannot afford to retire in full.

On average, L&G notes that over half of people taking a phased approach to retirement reduce their paid work by at least 15 hours every month, earning on average £9,150 less per year than before. As a result, 38% expect to have to adjust their lifestyle to accommodate the drop in income, and 17% anticipate that they may struggle with the cost of household essentials. The benefits available from the State Pension may influence any decision to retire and it is usually important to check the value available to you in advance of reaching your State Pension age. More detail can be found here: https://www.gov.uk/check-state-pension

Amongst those who planned to slow down at work, the increased cost of living has had an impact, with one in 10 people who had begun their phased retirement having to increase their working hours or commitments again. 40% of individuals who had planned to phase into retirement over the next five years are now concerned that living costs will not allow this to happen.

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However you choose to approach the end of your working life and the beginning of your retirement, phased or full, it is important that this is carefully planned and managed. Talk to the team at Chapters Financial well in advance for a clear understanding of your options. One recommendation we would make is to start your retirement planning as early as possible.

No individual advice is provided during the course of this blog.

Keith Churchouse FPFS
Director
CFP Chartered FCSI
Chartered Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899