Articles - The great unretirement requires flexibility

The post-pandemic rush to retirement appears to have gone into reverse. Immediately after the pandemic, the UK labour market saw the number of over 50s in work reducing. However, what is being called the ‘great un-retirement’ has seen over 173,000 people aged over 65 join the workforce between April and June this year - a record increase, which brings the total number of older workers to 1.47m - also a new record .

 By Dale Critchley, Workplace Policy Manager, Aviva
 The reason for the reversal has been put down to the number one concern for so many people across the UK right now - the cost of living. Closer examination of the figures shows that many have in fact returned to part-time working, which suggests they have not entirely given up on the idea of a slower pace of life. Perhaps they are taking advantage of a stressed labour market to find a role which helps to supplement a retirement income that is struggling to keep pace with inflation.

 It has long been maintained that retirement, rather than being a cliff edge, can be a gentle downwards-slope towards retirement. The ‘great unretirement’ shows it can ebb and flow over time too.

 The challenge for pension schemes is enabling this flexibility. Within defined contribution (DC) pension schemes the law allows schemes to provide this level of flexibility. However, in practice, there are schemes that struggle to provide the full range of solutions or the advice and guidance that is required by members trying to manage their income in later life.

 There are pension schemes with rules that do not allow for partial retirement or partial transfers. There are others which only allow members access to their pension savings once they have left the pension scheme or left the employment of the sponsoring employer. There are few single employer occupational pension schemes which offer members drawdown while still within their pension scheme.

 An employee in a scheme with these rules who is looking to cut their hours and supplement their income with their DC pension may need to come up with a cunning – and complicated - plan to achieve their aim.

 For example, and assuming the rules do not demand the employee leaves the employer, the first step might be to leave the scheme. The next step would be to transfer the workplace pension to a personal pension. At the same time as arranging a partial retirement within the new personal pension, they would opt back into their old workplace scheme and employer pension contributions would resume. The final stage would be to effect a partial transfer of the uncrystallised benefits from the personal pension back to the low charge workplace scheme. This puts our saver in the same position as if their workplace DC scheme had allowed a partial transfer - just with double the transaction costs and an administration headache.

 There might also be over-55s who want to continue their employment but are looking to their pension for small amounts of tax-free cash to help supplement their income over the next year or so. In-scheme drawdown and partial retirement allows this to happen with minimal fuss and no impact on the employer. Both options are generally available within master trusts and some workplace pension schemes.

 There is a justifiable case for preserving what are often quite limited savings until later life. Some employers and trustees take the view that the pension scheme is there to provide income once employees stop working and should not therefore be considered a savings account that can be accessed any time after age 55.

 There are also schemes which allow partial access at trustee discretion. In these cases, it is sensible for trustees to both consider how they apply their discretion equitably and how it might impact member decision making. Aviva’s Working Lives Report found employees are reluctant to talk about money worries, with almost three-quarters of employees (73%) having never spoken to their employer or line manager about their financial wellbeing . This suggests that scheme members might be put off if they are first asked to explain why they need early access and what the money will go towards, meaning trustees might inadvertently stand in the way of a solution to financial hardship.

 Overall, trustees should ask themselves whether their pension scheme rules provide enough flexibility to give members what they need. Whether that is overcoming unexpected financial challenges or simply achieving a gradual transition to retirement. Rules exist for a reason but can sometimes be changed or flexed and administration processes redefined. Ultimately, if the scheme is not meeting the needs of its members right now, trustees might want to consider what that might mean for its future.

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