Rising demand for flexible or 'semi-retirement'

Flexible retirement, also known as ‘semi-retirement’, allows an employee to reduce their working hours or take on a less senior position in the run-up to retirement.

Flexible retirement, a step-down retirement model whereby people transition into retirement by reducing hours and drawing on a pension as they approach their retirement age, is increasing across Ireland, with up to seven in ten financial advisors surveyed nationwide reporting a rising interest from clients over the last twelve months in this more gradual retirement model.

According to the findings of a recent survey of over 130 financial advisors nationwide undertaken by leading pension trustees, Independent Trustee Company, 14% described the rise of interest in flexible retirement as “significant.”

One in five advisors say the increase in interest has only been seen amongst wealthy clients, with 10% saying that while they haven’t seen the uptick as yet, they expect interest in flexible retirement to pick up over the next year or two.

Glenn Gaughran, head of business development with ITC, said: “Flexible retirement, also known as ‘semi-retirement’, is a relatively new workplace trend which, as our research suggests, is likely to gather pace in the coming years. Flexible retirement essentially allows an employee to reduce their working hours or take on a less senior position in the run-up to retirement, so they have more time to pursue hobbies and interests, spend time with or care for family, volunteer or even retrain.”

He added that it is clear that flexible retirement is becoming a preferred route for many clients looking to ease into their next life stage without sacrificing financial security. 

“Advisors are seeing more people looking for a middle ground between full-time work and full retirement. The ability to tap into pension savings while scaling back work is resonating, especially among those who want to maintain lifestyle stability without burning out.”

Interestingly, even those advisers who haven’t yet seen a rise in demand anticipate it’s only a matter of time before demand picks up – pointing to a shift in expectations around what retirement can and should look like.

“While not possible in every job, where it is an option, flexible retirement can be hugely beneficial. Benefits can include a better quality of life, improved health, less stress and the ability to work for longer than would have been the case if the individual continued to work full-time. 

"With some employees, the reduced working hours that come with flexible retirement can even lead to better productivity. Flexible retirement can also help people to be more prepared for and transition to full retirement.” 

Top 5 Tips for those considering a flexible retirement 

1. Check that it’s financially feasible: Given the reduced working hours, flexible retirement typically means a drop in income, and so it is not always financially feasible for people. 

Having an old or supplementary pension in the wings could make flexible retirement financially possible, depending on how well-resourced the pension is and whether it can be tapped into to supplement an individual’s reduced income.

2. Check how early you can access money in your pension scheme: It may be possible to access money in a pension from the age of 50 without fully retiring, depending on the type of pension and the rules of the scheme. 

If you have an old occupational pension scheme, you can usually start to draw down money from it once you reach the age of 50, as long as you’re no longer working with the employer who provided that scheme. 

If you have the likes of a Personal Retirement Savings Account (PRSA), active occupational benefits or personal pensions, as long as you wait until the age of 60, you can ‘retire’ and draw down from those pensions and continue working without having to actually retire.

3. Be mindful of the tax implications: In a flexible retirement, you’ll likely supplement your reduced income with money from a pension.

Taking money from your pension at the same time as earning money through employment could affect the rate you pay income tax at by moving you into a higher tax band. 

Be mindful too that the amount of tax relief that you can get on pension contributions is not just restricted by your age but also your total earnings, so you may not be able to get as much tax relief on pension contributions in flexible retirement as you had become accustomed to, particularly if there is a significant drop in your income.

Know where you stand on your tax-free lump sum, too. If you opt for flexible retirement and take a tax-free lump sum from an old pension when you’re in your fifties, any future tax-free lump sum that you draw down would need to take the previous lump sum drawn down into account.

4. Be mindful of the impact on your overall retirement income: The pension you receive from an old pension scheme will likely be lower if you opt for flexible retirement than if you continue working until normal retirement age, as there will be less time for the funds accumulated to benefit from any investment growth. 

Being on lower earnings could also impact your ability to fund any pension you continue to contribute to in semi-retirement, as you won’t have as much disposable income as you previously would.

5. Be very mindful of longevity: If you live into your 90s or more, you might regret accessing money in one of your pensions early on, particularly if your other pension investments don’t perform as well as expected. 

Also be mindful of the substantial medical and nursing home fees that might arise in your senior years, as well as your ability to fund these in the future if you opt for flexible retirement.

“The job-for-life is largely a thing of the past so it’s not unusual for workers today to have a pension or two from previous jobs, in addition to the pension they are saving into with their current employer,” concluded Mr Gaughran. 

“This means that it may be more financially feasible for people to take up the option of flexible retirement today than would have been the case in the past, as they could have an old or supplementary pension to tap into.” 

Flexible retirement is not a decision that should be taken lightly: “It’s important to fully understand the impact of flexible retirement on your income when you fully retire and on your ability to have a comfortable standard of living at that stage of your life. While flexible retirement can reap huge rewards for people, it would be crucial to get impartial financial advice before making any decisions here.”