The potential benefits of part-time working for your pension

Going part time in your later years could benefit your pension if it allows you to work for longer, according to new calculations.

Work Life Balance


Going part time in your mid 50s could boost your retirement wealth by allowing you to work for longer and draw on your pension for less time, according to new research.

According to calculations by Interactive Investor, if you earn the average UK wage of £31,000, you could boost your pension pot by £89,000 by downshifting your job and retiring a few years later. It says switching job at 55 and reducing your earnings by 30% from £31,000 to £21,700 and working right up until 66 instead of 62, would mean an individual would earn £36,000 less up till retirement. But if a less stressful job allowed them to carry on working until state pension age, their pension pot would still continue to grow until then and they could end up with £89,000 more in their pension and £52,000 more money overall than someone else who stayed in a higher-paid job but retired at 62 years old.

II say the difference is because a worker who downshifted would be able to continue contributing to their pension until they reached 66, giving them a total pension of £300,000. In contrast a worker who retired at 62, would need to withdraw £21,000 per year from their pension pot, between the ages of 62 and 66, to give them enough income to enjoy a moderate retirement. This would leave them with a smaller pension pot of £212,000 by the time they hit 66.

Alice Guy, personal finance expert at interactive investor, said: “A full-time job-for-life is no longer the norm and our recent 2022 Great British Retirement Survey showed that only one-third of 55-to-65-year-olds say they work full time.

“We need to start thinking about retirement in a different way and being able to downshift in our mid 50s could be part of that picture. When it comes to wealth planning, we often focus on how much we can add into our pension. But we sometimes forget the opposite side of the pension equation: how much and for how long we need to dip into our finite pension pot.

“If changing to a part-time, more junior or less stressful role allows you to carry on working for longer, you’ll need to withdraw less from your pension and might be able to leave it intact until you reach state pension age, currently 66 years old (soon rising to 67 and with more rises on the cards in future, for younger workers).

“In contrast, if staying in a more stressful job leaves you feeling burnt out and wanting to retire earlier, you might need to draw a significant chunk from your pension pot before reaching state pension age.”

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