Retirement is changing in the UK – from direct impacts such as the rise in state pension age increasing to 67, to the shift in general working habits that have been shaped by the pandemic leading to a new, phased style of retirement.
Changes to retirement are accompanied by a surge in the cost of living, with inflation reaching a 30-year high of 5.5% in January, alongside a rise in global energy prices which could be further accelerated by the Russian invasion of Ukraine.
Below we have outlined some key trends in retirement:
Rising state pension
In April 2022, state pensions are set to increase by 3.1%, meaning the new state pension will reach around £185, which would’ve been approximately 5% higher if the suspension of the pension “Triple Lock” hadn’t occurred. However, increased costs of living are having an impact on retirement living standards.
How much do you need to retire?
Research from the Pensions and Lifetime Savings Association shows that for a couple to have a comfortable standard of living in the UK, they would require a pension of about £28,000 before tax (this is £5,600 higher for those living in London). However, if relying on just one partner’s pension income to live, you would need almost £62,000 because of the higher rate tax payable on the excess over £50,270.
After April 2022, the state pension will equate to £9,628 a year, which falls very short of the amount required for a comfortable living standard in retirement. A retiree relying on this income would have to go without luxuries, such as a car and holiday.
Therefore, it is important to speak to a financial adviser early, to ensure you have the right retirement plans in place for the lifestyle you desire after you’ve retired.
Phasing into retirement
Retirement can come as a sudden shock to the system – it is a huge lifestyle change, which can not only impact you but also your partner. A gentle transition into retired life rather than the abrupt ending widely experienced by retirees today does come with its benefits.
Not only can it help businesses prevent valuable knowledge from being lost, but a phased return to work could offer an affordable way to reduce your workload as you head towards retirement.
Why could gradual retirement be a more affordable option?
Replacing your wage with your pension can be difficult, whereas transitioning to part-time hours reduces the drop in pay, especially with the way that income tax and national insurance work. With part-time earnings, you can reduce the amount drawn from your pension pot too.
Especially with the retirement age increasing to 67 years old, it can allow you to “wind down” from working without losing your entire wage.
How has the pandemic impacted this shift?
In the UK, we have seen a shift in how people are working, with increased numbers of employees continuing to work from home even as restrictions have been lifted. A study by the Office for National Statistics showed that between the 19th and 30th January 2022, 36% of workers reported having worked from home at least once during this period.
A recent survey showed that 56% of people retiring in 2021 were not planning to completely give up work, with statistics from ONS demonstrating that 13.4% of men and 8.1% of women over 65 are still in employment. With people continuing to work from home, this is expected to accelerate the existing retirement trend of a phased end to working life.
KLO Financial Services
At KLO Financial Services, we offer effective financial management solutions, including independent pension advice to help you plan ahead and secure the retirement you want and deserve.