Embracing flexi-retirement: four ways to support employees
Whether it’s a lifestyle choice or because they need to keep some cash coming in, more and more employees are now exploring the possibility of flexi-retirement.
With this trend looking set to carry on, it’s important that employers understand just what flexi-retirement involves – and how they can make it work for both their people and their business. Want to know more? We’ve put together this article to help you get started.
What is flexi-retirement?
Put simply, flexi-retirement is where an employee does some work while having more free time – part-working, part-retiring. And there’s a reason it’s only now growing in popularity...
Since 2015, a change in the rules around accessing private pensions means that if they’re aged over 55 (increasing to 57 from 2028), an employee can take out money from a pension as they need it – either as lump sums or through a process called income drawdown (or sometimes flexi-access drawdown or pension drawdown). And they can do this while generating income from working.
More than two in five 55-64-year-olds plan to move into ‘flexi-retirement’ before they reach 65 1Age of Ambiguity
This change, along with a cultural shift in our attitude to work, means more and more employees are now giving flexi-retirement a go – and bringing it up with their employers
4 ways to support employees considering flexi-retirement
- Take a personalised approach
When discussing an employee’s plans, it’s important to be empathetic and consider each person’s unique circumstances and job role.
So, rather than adopting a blanket approach to flexi-retirement requests, we recommend considering each request individually. Is the role suitable for becoming part-time, for example? What impact will the request have on the business, and can that be managed with no or minimal disruption? It may even be a chance to reorganise the role or department to make everyone’s lives easier. If you do choose to reject a flexi-retirement request, make sure you sensitively and clearly communicate the reason in writing.
- Encourage forward thinking
While flexi-retirement is mainly for those aged 55 and above, we’d encourage you to make your employees aware of it as a possibility – and as something your business supports – long before this point is reached.
In fact, encouraging everyone in your business to think more broadly about their retirement plans, whatever their age, could be a good way of supporting your employees’ wellbeing and future finances.
How? Introducing them to Retirement Living Standards is a great starting point. Created to help individuals assess how much they’ll need to live comfortably in retirement, it offers a realistic and helpful financial picture – while steering clear of information overload.
- Connect your team with useful tools
Whether an employee is considering flexi-retirement now or way in the future, there’s a range of handy online resources you can recommend to help them out – including our Pension Calculator. Here, they’ll find a range of options and advice to help them with their plans.
- Highlight the options
Not everyone will be aware of income drawdown and the possibilities it brings once private pension age is reached. This is why we recommend including income drawdown information as part of your pension planning service. That way, you'll be equipping your team with the knowledge they need to make informed decisions about their financial future.
How income drawdown works
Not sure exactly how income drawdown works? Here’s a quick overview for you and your employees.
- Take up to 25% of their pension pot tax free
Income drawdown lets individuals use their tax free-allowance. This means they’re allowed to take up to 25% of their pension pot as a tax-free lump sum. They have the flexibility to take this in just one withdrawal or spread it across multiple withdrawals. With each tax-free withdrawal, three times the amount taken tax-free is moved into a drawdown pot and withdrawals from there will be taxable.
- Access more of the pension pot if required
They can keep making single withdrawals as and when they like, as long as they’ve got the funds available. Or they can set up a regular withdrawal, with the flexibility to change how much and how often they take money.
Apart from the 25% tax-free lump sum, each withdrawal will be treated as income and taxed according to their individual circumstances.
It’s also important that they regularly review their withdrawals to ensure they have sufficient funds for their retirement.
- Regularly review their remaining pension
The rest of their pension will stay invested. The value of the pension can go down as well as up though, and they may get back less than has been paid in.
They can review their investment options at any time to make sure they’re happy with the level of risk involved.
Alternatives to income drawdown
If flexi-retirement isn't the right solution for your employees, there are other ways they can take the money they need for their retirement:
They can use some or all of their pension pot to buy an annuity, which provides a guaranteed income for life, with the option to continue supporting a partner or dependent after death. Once they start to get payments from an annuity, they will not be able to change their mind.
Cash lump sums
They can withdraw some or all of their pension pot as cash. Any money that isn't withdrawn stays invested, where the value could go up or down and they may get back less than paid in. Any money not withdrawn when they die can go to family.
Whether together or at different times, a combination of annuity, cash, and income drawdown allows them to access the benefits (and accept the risks) of all options.
Flexible support in a changing world
Flexi-retirement is a significant benefit of pension freedoms. It has the potential to positively impact everything from your employees’ bank accounts to their work-life balance, offering a new sense of freedom and fulfilment. That’s why we believe flexi-retirement is only going to become more popular in the future.
By supporting employees considering (or already on) the flexi-retirement path, you can help shape their future – and, in turn, help to build a happier, more fulfilled team for your business. Win-win.
Learn more about what options are available for your employees when planning for retirement.