older-adults-sitting-in-the-sun-illustrating-different-types-of-retirement

For most of us, retirement punctuates a huge milestone in our lives.

Transitioning from the world of work to a life of leisure can feel daunting as the leaving date draws near.

It may surprise you to learn that you have more retirement options than you might expect.

In this post, we’ll be exploring the different types of retirement that people can experience in the UK.

We’ll cover the good, the bad, and where to turn if you need support.

1. Early Retirement – The ‘Risky’ Early

Leaving work when you’re younger than the official retirement age.

In the UK, the official retirement age for both men and women is 65. This means that 65 is the youngest possible age you have to reach before you’re eligible for a state pension. The eligibility for your work or personal pension may vary; check with your employer if you’re unsure. 

When someone retires early, they usually relinquish their agreed pension rights until they reach the ‘correct’ age. Let’s say someone’s work pension has an entitlement age of 55, but they take early retirement at the age of 52. They’d have to wait another 3 years before they could access their pension penalty-free. 

Can You Access Your Pension Early? 

Yes, but in most cases, it’s not a great idea. Your savings will be subject to substantial taxes and other potential fees.

2. Premature Retirement – The ‘Safe’ Early 

When someone above 55 is made redundant but still gets their pension benefits.

So, what’s the difference with premature retirement? If you’re over 55 and your employer decides to make you redundant, they may decide to offer you premature retirement. This usually means you get to keep your previously agreed pension benefits. A lump-sum payment is sometimes also possible. 

Keep in mind that your employer isn’t obliged to offer premature retirement; it’s ultimately their decision to make.

Teachers might be likely to encounter premature retirement. The Teacher’s Pensions site can offer guidance if this happens to you.

3. Phased Retirement/Semi-Retirement 

A flexible approach to retirement that offers partial withdrawals and boosted income.

If you don’t feel ready to retire fully, a phased retirement may be exactly what you’re looking for. You’ll have to get your employer’s approval first, but it allows countless employees across the UK to maintain extra income while gradually settling into retired life.

Your work or personal pension may offer semi-retirement options. This means you’ll be able to ‘dip into’ your pot penalty-free. Some people in semi-retirement opt to delay state pension to increase their monthly payments when they do decide to claim. 

More information about deferring your state pension can be found here.

Click here to learn more about phased retirement and your options for retirement earnings.

4. Late Retirement 

Later retirement where payments may be increased by ‘late retirement factors’.

Those who aren’t ready to retire at all at 65 may find late retirement to be a better option. In some cases, delaying your retirement can mean that your payments are increased by something called late retirement factors.

If your employer or pension scheme offers these factors, they’ll be used to calculate how much your monthly payments will increase. This usually takes into account the number of days, weeks, or months past your retirement age that you’ve worked. 

You may be able to increase your retirement income even further if you opt to delay your state pension. When planning for late retirement, be sure to check the specific terms laid out by your pension scheme and employer.

5. Ill-Health Retirement – ‘Medically Retired’

Claiming pension benefits early due to ill health that makes working difficult. 

If you live with an illness or injury that makes working very difficult, you may be eligible for ill-health retirement. Keep in mind, however, that the criteria for this kind of retirement are usually very strict. If successful, you’ll be referred to as ‘medically retired’ and will be able to access your pension earlier than the official retirement age.

In the vast majority of cases, your illness or injury will have to be a permanent obstacle to gainful employment. You’ll also have to prove that there are no medicines or treatments available that could help you return to work comfortably. A statement from a qualified doctor will be necessary to do this. 

For better or worse, pension schemes are beginning to focus more stringently on methods of rehabilitation and a slow return to work rather than becoming medically retired. You may be asked to try going part-time in order to gauge how this change works for you. 

If you think you might be eligible for ill-health retirement, it’s a good idea to apply while you’re still working somewhere with an agreed pension scheme. This isn’t strictly necessary, but it can make the process of applying significantly smoother.

Reader, please note – access to the state pension in the UK starts at 65 regardless of illness or injury. 

This article from Unbiased goes into the subject in more detail. 

What About if I’m Terminally Ill? 

If you can prove that you have a life expectancy of less than one year, you may be able to withdraw your entire pension as a lump sum. If you’re over 75 when this happens, this sum will be subject to the normal rate of income tax.

6. Temporary Retirement

Small ‘retirement breaks’ where someone leaves work and then returns later. 

If you’re someone who’s used to hopping from job to job, temporary retirement may be the right choice for you. Those who take temporary retirement often take a break from working for a set period (say one year) and then return to the same or different work afterwards. This usually involves taking some form of early retirement in order to access those much-needed funds.

Keep in mind that the financial planning involved here can become a little more complicated than the other options listed on this page. The pot you need access to won’t have to be as large as you’ll only be away for a few months or years. However, your funds will no longer be growing from compounding interest and regular deposits. 

Our advice is to speak with an accountant and your employer before trying out temporary retirement. 

Some Resources 

In this section, we’ll run through some useful resources that should help you on your retirement research journey. 

Types of Retirement – Conclusion

It’s normal for retirement to feel a daunting prospect at first. Knowing whether to take a break from your career, build a solid financial base or rejoice in a life of leisure is always a tricky decision and will vary depending on your appetite for risk and personal circumstances. With the right support and know-how, however, you’ll have everything you need to enjoy life after work in comfort!