Transition into retirement overtakes 'hard stop'

People's expectations of retirement are changing. Most workers no longer hope or expect to have a 'hard stop' retirement, where they simply stop working and rely solely on their pension.

Instead, a majority now anticipate retirement to be a period of transition, where they reduce their working hours and balance work with doing other things.

Hopes vs. expectations

Only 15% of UK adults think that a 'hard stop' retirement will represent most people's experience in the next 10-25 years, according to Phoenix Group's longevity think tank, Phoenix Insights.

Comparing people's hopes versus expectations of moving to retirement, a survey of 1,500 people found that 44% hope for a 'hard stop', 47% hope for a period of transition and just 9% hope to keep working.

However, many don't expect to achieve the retirement they hope for. In reality, 30% expect a 'hard stop' to their working life, 46% expect a period of transition and 24% expect to keep working.

Just half (52%) of those who are hoping for a hard stop realistically expect to achieve this, and one in five (19%) of this group think they will actually have to keep working.

Pension savings boost

Less than one in five (17%) current retirees moved to part-time work once they reached retirement age, with the majority (76%) stopping work entirely, according to Standard Life, part of Phoenix Group. In contrast, almost half (47%) of 18- to 24-year-olds anticipate a switch to part-time work, while 29% expect to stop work completely.

Transitioning into retirement by working part-time for a few years after reaching state pension age can boost a pension pot by tens of thousands of pounds.

An analysis by Standard Life found that someone who began working on a salary of £25,000 per year and paid the minimum monthly auto-enrolment contributions (5% employee, 3% employer) from the age of 22 could have a total retirement fund of £434,000 by the age of 66. But staying in work and working 3 days a week from 66 to 70 could add £97,000 to their pension pot.

Different pension landscape

"Younger generations perhaps realise that the onus will be on them, rather than their employer, to ensure they have enough to live on throughout later life and retirement," said Dean Butler, managing director for Retail Direct at Standard Life. "As pension policy has evolved, individuals now have much more responsibility for funding their own retirement which may mean working for longer, whereas older generations have largely benefited from Defined Benefit (DB) pensions which have provided financial security and allowed many to immediately move into full retirement."

Catherine Sermon, head of Public Engagement and Campaigns at Phoenix Insights, added: "Part-time work can be a game changer for those who want or need to remain in work after state pension age, offering the flexibility for people to continue to earn and work while managing other life or health needs. Financially, there are huge benefits from maintaining an income from work as it means people may be able to reduce how much they take from their retirement savings each month or delay taking any out at all. For some, it may even mean they can continue to save and boost their retirement pot.

"The 'hard stop' retirement has been superseded by those opting for a gradual transition and it's likely we'll see a rise in people who will never fully retire. Part-time work plays a vital role in this changing approach, but we need to ensure we address the barriers people face accessing reduced hours working, especially later in life."