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Semi- Retirement

Tips to help you work less and live more

People no longer suddenly retire in one go. Thousands choose to cut their hours and gradually phase out working life. To help, we offer 6 semi-retirement tips in our downloadable factsheet.

Download factsheet

TIP 1   Tidy up your pensions

It’s important to know how much pension wealth you’ve built up over the years. It can help you to understand if you can realistically afford to semi-retire, or whether you’re going to have to wait a few more years.

You can find out how much your pensions are worth by digging out old paperwork or contacting your pension providers. If you can’t find any information on your pension and aren’t sure which company it’s with, try the Pension Tracing Service.

It can be hard to keep track when you’ve got pensions scattered around different companies. To make life easier in the future, you could think about moving any old workplace or private pensions into one place.

It might be possible to bring all your pensions to HL so you can see what your pension is worth online or by using the HL app. Make sure you check for any guarantees or high exit fees before transferring.

Unite your pensions

TIP 2   Reduce your hours without changing jobs

Working fewer hours a week and gradually moving into retirement could be easier than you think.

You can talk to your employer about the possibility of reducing your hours. And you have the right to request flexible working. They have the right to refuse, but they must have a valid business reason for doing so. The Citizens Advice Bureau provides online guidance for enquiring about flexible working.

TIP 3   Use some of your pension to top up your income

Reducing your hours, changing jobs, studying or starting a business could mean you end up earning less. Luckily, from 55 (rising to 57 in 2028) your pension can be used to make up for any shortfalls.

When you first access your pension you can normally take up to 25% of your hard-earned savings tax free, which you could use to help supplement a drop in income.

If your tax-free cash won’t be enough, or you have other plans for it (like paying off your mortgage), you can receive a taxable income from your pension.

For anyone who’s comfortable with the risks involved in keeping their pension invested, drawdown can really help complement a gradual retirement. You choose how much income to take and if your circumstances change you can adjust the amount. Although investments can fall as well as rise in value, so you could get back less than you invest.

Alternatively, if you don’t want to worry about the ups and downs of the stock market in retirement, an annuity will provide you with a guaranteed income for life. But for most this might not make sense until after you've finished work completely. More on this in tip 6.

Remember, drawdown is a higher risk option than an annuity. If you’re not sure about your retirement options, from age 50 you can seek free guidance from Pension Wise, and if you’re still unsure, you should think about getting personal advice.

TIP 4   You can take an income from your pension while paying into one

If you’ve got a workplace pension you can still benefit from tax efficient pension contributions from your employer. Alternatively you can contribute to a private pension and benefit from tax relief.

However, if you take a taxable income from your pension through drawdown or as an Uncrystallised Funds Pension Lump Sum (UFPLS) you’ll trigger something known as the Money Purchase Annual Allowance (MPAA). This means contributions to all your Money Purchase Pensions are limited to £4,000 each tax year.

By just taking your tax-free cash you won’t trigger the MPAA, but you’ll need to be aware of tax-free cash recycling. These rules apply when paying into a pension when you’ve taken your tax-free cash. Tax rules can change and benefits will depend on your circumstances.

TIP 5   Think about putting off the State Pension

If you’re still working when you reach State Pension age, you might not need it straight away. You can defer payments if you think you won’t need them. For every nine weeks you defer, the government will increase your payments by 1%. This gives you around 5.8% extra a year.

So if you’re due to get £179.60 a week when you reach State Pension age but choose to defer for 12 months your weekly payments will increase to around £190.01. Find out more about the State Pension.

You can put off a defined benefit (e.g. final salary) pension too. Most of these schemes will increase the amount you receive each year if you do defer. Your scheme provider can tell you how much more this will be.

If you delay taking your State Pension or final salary pension you will miss out on income in the meantime. You should weigh up the potential cost or benefit before deciding whether or not to defer.

TIP 6   Choose the right time to buy an annuity

If you’re happy to keep your pension invested, you might not benefit from buying an annuity straight away, particularly if you plan to semi-retire.

Throughout retirement your income needs will probably change. In the early years it's possible you’ll want a more flexible income, and in the later years you might be after more security.

A secure income is still really important in retirement. A good time to look at buying an annuity is when you give up work altogether. You’ll no longer have an income stream from your earnings to cover your essential bills, and an annuity can help cover these.

Rates also tend to be higher for older people, especially those with medical conditions. With every year you get older and potentially develop health conditions you could get a higher annuity income. Although annuity rates change all the time, so there’s no guarantee the rate you get in the future will be higher than the rate you could get now.

Your annuity rate also depends on the options you choose, so it’s important to choose your options carefully as once set up you can’t normally change your mind.

Guide to semi-retirement

Want more details about each of these tips?

Download now

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