Transitioning into retirement


Making the decision to transition into retirement is not a quick or easy one. After all, there’s so much to think about. It’s important to ensure that you have the funds to enjoy your golden years, and figure out whether you’ll be receiving just a state pension, or a workplace or private pension too.

If a worker does not have the funds they need to kick back, and relax – it might be a good idea to consider flexible retirement, otherwise known as phased or part-time retirement.

Perhaps you’re in the lucky position of being able to consider early retirement. Well, even then there’s lots to consider, much of it involving lots of planning and calculations.

Equally, sometimes unforeseen circumstances crop up, such as illness or redundancy, and this can force workers into early retirement.

Whatever decision you choose to make in relation to retirement, it’s essential that you’re clued up on your rights, and you’re aware of all of the terminology related to retirement.

It may seem like a bit of a maze right now, but keep reading, and you’ll learn all there is to know about navigating your retirement.

What is retirement?

Traditionally, retirement refers to the process whereby an individual withdraws from working life in their sunset years. It is often associated with images of leisure, golf and cruises. However, often this is not the reality experienced by those of retirement age, and many do not take on full-time retirement straight away.

Alternatively, some opt for flexible retirement. While this encompasses a number of different options, primarily, it involves a worker reducing the amount of paid work they do, and supplementing this by taking more of their pension. It is also likely to become more common, due to the additional financial burdens faced by millennials and Generation Z.

That being said, although this is a sensible option for a lot of people, meaning there is less stress in later life, and a more gradual adjustment to retirement, there are financial implications and disadvantages too. For example, opting for flexible or phased retirement can mean that there will be less cash in the money box later on.

Can a worker be forced into retirement?

Before April 2011, employers could force workers into retirement at the age of 65. This was known as the Default Retirement Age. Then, the Employment Equality (Repeal of Retirement Age Provisions) Regulations 2011 came into effect, and changed all of that.

Moreover, an employee cannot be dismissed on the basis of their age, as outlined under Equality Act 2010, which prohibits discrimination against protected individual characteristics. However, if an employer believes that an employee can no longer perform their job to the required standard, an employee can be dismissed from their position. This would be on the basis of capability or “Some Other Substantial Reason (SOSR), as outlined by Section 98 of the Employment Rights Act 1996.

The difference between retirement age and pension age

Many people often confuse retirement age and pension age as having the same meaning. However, they are two entirely different things. While retirement age simply refers to the age an employee decides to retire, pension age refers to the age at which an employee is entitled to receive their pension.

State pension age is constantly in flux. At present, the state pension age is almost 66 for women and men. However, this will increase to 66 by October 2020 and is set to rise to 67 by 2028.

Retirement pay

Figuring out the ins and outs of retirement pay, can feel a bit like solving a complex conundrum. Rules are constantly changing and things aren’t always as clear as they could be.

However, when it comes to retirement pay, there are three main types:

State pensions are weekly payments that people receive from the government, once they have reached their state pension age. It is calculated based on National Insurance (NI) contributions or NI credits.

Prior to 5 April 2016, the standard rate of state pensions was £134.25, as calculated by the old system (those who reached state pension age either on this date or before, will claim under the old rules). However, big changes were introduced after this date. After the 5 April 2016, state pensions began to be calculated based on NI records alone.

The full weekly amount available for state pensions is now £175.20 per week. That being said, in order to receive this full amount, and individual must have a 35-year NI contributions record. In addition to this, if an individual does not have ten years of NI contributions, typically, they will not receive a state pension.

Additionally, by law, employers must enrol employees onto a workplace pension scheme. There are two kinds of workplace pension schemes:

  • An occupational workplace pension scheme
  • A group personal pension scheme/stakeholder pension scheme

The former, can be divided into:

  • Defined benefit schemes, which are linked to salary and usually matched by an employer), and;
  • Defined contribution schemes, which are linked to how much is paid in, how long it’s been invested, and how the investments have performed. This form of scheme is not always paid into by an employer

The latter, works by an employer choosing the pension provider, an the employee establishing an individual contract with said provider.

Meanwhile, private pension schemes are set up by and paid into by the individual employee.

Early retirement

According to research conducted by Just Group, a whopping 3.6 million people in the UK aged 65 and over, have been forced into early retirement.

The retirement specialist found that among 55-74-year-olds who had retired early, 40% did so due to illness, 18% due to redundancy, and 8% left to care for loved ones. Shockingly, only 17% took early retirement because they had the means to do so.

Of course, there’s a lot that needs to be done, in order for an individual to retire early and have financial stability and independence.

This includes paying off debts and mortgages, having sufficient savings for both basic needs and rainy days, and a little bit on the side in order to enjoy retirement. Clearly, this isn’t a viable option for most.

Final thoughts

So, before you make any rash decisions about saying goodbye to the world of work, it’s important to think long and hard about what you want, and how you will achieve this.

Take into consideration the savings you have, what you will receive from your pension plan, and whether you’re mentally prepared to take on retirement full-time.

Don’t rush yourself, this is a huge decision, and one that will effect how you experience your twilight years!

Article Created By Madaline Dunn

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