Pensions pathways: managing the transition

For more people the move from work to post-work is not the cliff edge it once was. It occurs slowly and in stages as people figure out how they want to live in later life. 

“Personally I think the distinction, pre- and post-work, is somewhat outdated,” says Gillian Cardy, financial life planner at Red Kites Money and director at Professional Partnerships, a financial services business consultancy. 

“More and more people are using 'retirement' to start their own businesses and engage in some other form of economic activity – from bed and breakfast, to creative arts, to consulting or directorships,” she says.

“I have found people are not retired, just engaged in different but mostly unpaid work – trustees, magistrates, volunteers at all kinds of levels. 

“The idea that retirement is a 40-year long holiday, or lawn-mowing exercise, is simply not borne out in practice.”

Work or play?

Since April 2011 it has been illegal for employers to force employees out of their job because of age, apart from some very specific exceptions, even once they hit 65 - the default retirement age. 

Choosing to continue working doesn't damage state pension entitlement, which can be claimed at 65 for men and 63 for women, increasing to 65 by November 2018, then in December 2018 this rises until it reaches 66 for both in October 2020 and 67 between 2026 and 2028. 

Deferring the state pension can have some financial benefits worth considering for those still getting a wage, and private pensions can usually be taken earlier, which again is unaffected by a decision to continue working – though pension income is normally treated as earned income for income tax purposes, so will be taken together with any wages and taxed accordingly.

Open discussions with employees, holding workshops or offering on site financial advice clinics could all help with this transition.Kate Smith

But people should still be planning ahead for an upcoming change in working patterns. It can be overwhelming, however, and is a crucial point for the professionals to step in and help, though there is considerable debate about when to intervene.

“We need to start talking to people much earlier about their retirement income choices, not leave it until a few months before their selected retirement date,” according to Kate Smith, head of pensions at Aegon.

She believes pension providers and employers should be nudging people into making good retirement decisions when they hit their 50s or even earlier.