- Four factors now typically determine when someone chooses to retire: their ability to fund their lifestyle without work; their appetite for a life without work; their inability to secure employment, and their health, with the latter two sometimes forcing their retirement.
- If employees choose to take a tax-free lump sum as soon as they retire at the age of 55, rising to 57 from 2028, they can spend the cash on whatever they like, such as paying off their mortgage, home improvements or helping loved ones.
- Online pension calculators can help employees to become aware of how much they will need to save to be able to retire at their desired age.
Research published by pension provider Aviva in December 2021 revealed that a quarter of employees who are planning to retire early have a target to leave work on their 60th birthday. The survey of 2,000 people also found that 17% of those who chose to exit the workforce ahead of receiving their state pension had done so at the age of 60, six years before the current UK state pension age. With this in mind, here are some practical tips for employers on how to support staff with early retirement.
Determine reasons why staff want to retire
Typically, staff will leave the workforce as soon as they feel they have adequate financial resources set aside so they can spend more time doing the things they enjoy, with Aviva's research showing that 57% saw a boost to their mental wellbeing and 50% noting that their physical wellbeing improved.
However, some employees may find themselves pushed into early retirement due to redundancy packages at their place of work. Ill-health will have also forced some to leave earlier than they may have, says Alistair McQueen, head of savings and retirement at Aviva. “An absence of opportunity, possibly because of a culture of ageism, has closed the employment door to others," he says. "Four factors now typically determine when someone chooses to retire: their ability to fund their lifestyle without work; their appetite for a life without work; their inability to secure employment, and their health, with the latter two sometimes forcing their retirement.”
The Covid-19 (Coronavirus) pandemic has also made some people rethink their lifestyle choices, says Robin Dargie, senior consultant at Quantum. “For some, this has meant early retirement. Current increases in the cost of living might tempt or force some people to start taking some pension early.”
Review the financial elements of early retirement
Some employees might want to ease into retirement by working part-time and using some of their pension to supplement their income.
Beyond the additional freedom early retirement can bring, there is also the possibility of taking part of a pension as a lump sum, explains Romi Savova, chief executive officer (CEO) of PensionBee. “If savers choose to take their tax-free lump sum as soon as they retire at the age of 55, rising to 57 from 2028, they can spend the cash on whatever they like, such as paying off their mortgage, home improvements or helping loved ones,” she says.
An employee with strong finances and a desire to enjoy life without work could also be motivated to retire early.
Communicate, and then communicate some more
If an employee wants to retire early they need to plan for it, as individual responsibility for retirement wellbeing has never been greater.
An important part of this is to understand the state pension age and the state pension entitlement in addition to workplace savings, says McQueen. “The state pension continues to be the biggest single source of income for most people in retirement, and will often determine an ability to retire, or not," he explains. "They should also understand how much they have saved for their retirement to date in addition to their state pension, as well as estimating their projected retirement income based on their state pension entitlement and their additional private savings knowledge. With this foundation, they will be well placed to consider when early retirement could be an achievable goal.”
Educating employees throughout their working lives about the importance of pension saving will also prove invaluable when the time comes to put plans into place. This could include the importance of making above-minimum contributions to a workplace pension, pensions consolidation, and engaging with technology.
“Online pension calculators can help employees to become aware of how much they will need to save to be able to retire at their desired age," says Savova. "Ultimately, engaging with pensions from the outset and having clear retirement goals in place can help prevent employees leaving the workforce prematurely, while ensuring they save enough to last their entire lifetime.”
Employers can help staff plan ahead by signposting to useful resources, such as encouraging employees approaching the age of 50 to book a free Pension Wise appointment. “This service is a great way for savers to obtain impartial general advice around their pension options," says Savova. "During the appointment, the guidance specialist will cover a range of topics, from the options savers have once they reach their 55th birthday to warnings around spotting pension scams.”
Support employees choices
Arguably, a good employer will empower staff to take control of their finances and plan for their longer-term futures and retirement.
McQueen believes that many employers are looking to retain, not retire, their staff. “Good employers will be mindful of the needs of their older employees, such as the desire for more flexibility and the need for more support with responsibilities, such as carers leave. By listening and investing in this older population, good employers will be well placed to win this war for talent.”
