10 May 2019

The pros and cons of flexible retirement

4 min read


Flexible retirement may sound like great option for people wanting to take things easier in later life, but it’s important to weigh up the practicalities

Flexible retirement – reducing the hours you work and boosting your income by drawing on your pension benefits – seems like an increasingly attractive concept for people aged 55 and over. But is this really a realistic way to approach things? Take a look at our pros and cons, and the things you might need to consider when it comes to making your retirement income last.

Watering can

What are the pros and cons of flexible retirement?

The pros
  • Flexible retirement gives you the opportunity to take life slightly easier, without giving up the structure and companionship of employment.
  • It means you can continue earning a salary, and any gap in your earnings can be filled by drawing on one or more of your pensions.
The cons
  • Lots of people won’t have enough pension savings to make flexible retirement practical.
  • Drawing on your pension, especially your State Pension, the moment it becomes available could spell bad news in the future. Most people won’t be able to build enough savings from the income they’re earning by working part-time and late in life to give them a good standard of living throughout retirement.
  • You could end up having to work for many more years, or live on an inadequate income, if you reduce your hours at your normal retirement age, let alone earlier.
    • For someone wanting a ‘silver standard’ retirement – with an income worth half their pre-retirement income and protection against inflation – switching to part-time employment at state pension age might mean they have to work for a further five or six years.
    • For a ‘gold standard’ retirement – with an income equivalent to two thirds of their pre-retirement income, protection against inflation and provision for their spouse after their death – they might have to work part-time up to the age of 85.
Find out more

Take a look at Royal London’s The ‘mirage’ of flexible retirement report for more information.

How can you make your retirement income last?

So, with all of these things to consider, how do you make sure you have enough to live on throughout your retirement?

1. Start making pension contributions as soon as you can

The best way to ensure you have enough income in your later years is to start contributing to a private or occupational pension as soon as possible. This means you can make plenty of contributions, and it also gives your money time to grow. Plus, if you’re a member of an occupational pension scheme, your employer may be prepared to match any extra money you pay in over and above the minimum contributions required.

2. Pay into your pot for as long as possible

Even if you’re in your fifties, sixties or older, there are still ways you can improve your financial prospects once you retire. You may be able to continue contributing to your private and occupational pensions. There’s less time for your money to benefit from stock market growth, but your contributions will benefit from tax relief at the highest rate of tax you pay. For more information about how much you can invest visit the MoneyHelper.

3. Keep a record of how much you withdraw

It’s also wise to keep an eye on exactly how much you’re withdrawing from your pension pot, and the consequences of doing so. The government has limited the tax-free amount you can invest in your pensions to £4,000 a year if you’ve already accessed your pension pot (this applies to any contributions made from 6 April 2017). So, anyone who has drawn on the taxed part of their private or occupational pension can’t make a contribution of more than £4,000 a year. However, you can still take your tax-free lump of cash without triggering the £4,000 contribution limit.

4. Defer your State Pension

You can also make a significant improvement to your State Pension by deferring the benefits – in fact, it’ll increase by 5.8% for every year that you delay receiving your benefits.

5. Get professional advice if you need it

Pensions are complex and their rules change frequently. If you’ve got any concerns or questions about investing in a pension, it’s a good idea to seek help from a professional financial adviser.