How working part-time in retirement could boost your pension by £97,000
Easing into retirement by working a few days a week could add thousands to your pension pot. We crunch the figures to see how working part-time can boost your pension pot
Easing into retirement with part-time work - also known as “semi retirement” - can be good for your mental health and combating loneliness, as well as being good for your finances.
And it seems there’s a generational shift happening, with younger people much more likely to consider working in retirement. A survey by Standard Life shows that almost half (47%) of those aged 18 to 24 intend to work part-time in retirement age compared to just 17% of current retirees.
“People’s approach to retirement is shifting, with many preferring to gradually ease into retirement by reducing working hours rather than suddenly stopping work altogether,” comments Dean Butler, a managing director at Standard Life.
“Reducing working hours or taking on part-time work can not only boost pension savings, but it’s also a healthy way to phase into retirement and start to understand what the day-to-day reality of life without work looks like.”
How to boost your pension with part-time work
Gradually winding down work in retirement can add a significant amount to the overall value of a pension pot.
For example, someone that began working on a salary of £25,000 a 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.
However, someone that worked three days a week from age 66 to 70 could add £97,000 to their pension pot.
Even if you chose to work only one day a week during those years, you could still add as much as £81,000 to a retirement fund.
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Impact of working past retirement age
Pension savings retiring aged 66
Pension savings working part-time for 1 day a week from 66 to 70
Pension savings working part-time for 2 days a week from 66 to 70
Pension savings working part-time for 3 days a week from 66 to 70
£434,000
£515,000
£523,000
£531,000
Row 1 - Cell 0
+£81,000
+£89,000
+£97,000
These figures assume 3.5% salary growth and 5% investment growth per year, and a 1% annual management charge.
Make sure you pay attention to the pension allowances to maximise your tax relief. If you have taken money out of your pension, you can only pay in a maximum of £10,000 per tax year.
Savers that have not accessed their pension yet have a pension allowance of £60,0000.
If retirement is a long way off for you, and you’re wondering how to boost your pension savings now, then consider using the 1% pension rule. Increasing your monthly contributions throughout your career could boost your pension by as much as £100,000.
A generational shift in pensions and work attitudes
Less than one in five (17%) retirees moved to part-time work once they reached retirement age, with the majority (76%) stopping work entirely, according to Standard Life.
Younger generations, however, plan to wind down their working hours, with almost half (47%) of 18- to 24-year-olds anticipating moving into part-time work, while 29% expect to stop work completely.
Butler comments: “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.
“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.”
The Scottish Widows report revealed that workers aged 35-44 years old are the age group most likely to believe they will never be able to afford to retire.
Some will be planning to work long past their state pension age.
Jonathan Watts-Lay, director of WEALTH at work, a financial wellbeing and retirement specialist, notes: “Those who are approaching retirement should make sure they work out a financial plan, starting by carefully looking at what pensions, savings and investments they have. There are 2.8 million lost pension pots sitting unclaimed, so it’s important to track them all down before working out what income you’ll have."
He adds: “If someone is worried that they haven’t saved enough, it may be worth delaying retirement or continuing working part-time. This would enable them to make more pension contributions, and they would be able to take advantage of tax relief and employer contributions for longer to build up their savings.”
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Ruth is an award-winning financial journalist with more than 15 years' experience of working on national newspapers, websites and specialist magazines.
She is passionate about helping people feel more confident about their finances. She was previously editor of Times Money Mentor, and prior to that was deputy Money editor at The Sunday Times.
A multi-award winning journalist, Ruth started her career on a pensions magazine at the FT Group, and has also worked at Money Observer and Money Advice Service.
Outside of work, she is a mum to two young children, while also serving as a magistrate and an NHS volunteer.
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