Phased retirement in the UK: how to step down gradually

What phased retirement means

Phased retirement is a gradual move from full-time work to full retirement. Instead of one leaving date, there are several smaller steps: perhaps 80% of your hours for a few years, then 60%, then a final stop when it feels right. Some people also change role along the way, moving to something with less responsibility or travel.

In the UK there is no single “phased retirement scheme”. It is put together from two sets of rules: your right to ask for flexible working, and the flexibility in how pensions can be taken. Some employers offer formal phased retirement policies, and some pension schemes allow partial retirement, so it is always worth asking.

We call it a glide. Our guide to semi-retirement in the UK covers the bigger picture; this guide focuses on the mechanics.

Phasing your work

The first half is changing how much you work. Common routes include:

• Reducing your hours in your current role, through fewer or shorter days.
• A step-down role with less responsibility, line management or travel.
• A phased retirement arrangement, if your employer has a formal policy.
• Freelance, consultancy or a part-time role elsewhere, sometimes called a bridge job.

In Great Britain every employee can make a statutory flexible working request from their first day in a job, and up to two requests in any 12 months. Your employer must consult you, can only refuse for one of eight business reasons, and must decide within two months. Our guide on how to ask to reduce your hours includes a letter template.

Working less costs less than you might think, because the slice of pay you give up is the most heavily taxed. On a £45,000 salary in England with a 5% pension contribution, dialling down to 80% costs about £510 a month in take-home pay, and going to 60% keeps about 64% of your take-home pay.

Phasing your pension

The second half is optional: taking some pension money to top up a smaller salary. How that works depends on the type of pension.

Defined contribution pensions

With a personal or workplace defined contribution (pot-based) pension, you can usually start taking money from age 55, rising to 57 on 6 April 2028. You don’t have to stop working. Usually 25% can be taken tax-free, up to the Lump Sum Allowance of £268,275 for most people, and the rest is taxed as income. Common ways to phase it include:

• Flexi-access drawdown: you move some or all of the pot into drawdown, usually taking up to 25% of the amount moved as tax-free cash, and leave the rest invested to draw on as and when.
• Uncrystallised funds pension lump sums (UFPLS): you take lump sums straight from the pot, and each one is usually 25% tax-free and 75% taxable.
• Staged tax-free cash: taking tax-free cash in tranches rather than all at once, which some people use to top up income in the early years of working less.

Not every scheme offers every option, so check what yours allows. The retirement glossary explains these terms in plain English.

Defined benefit pensions

Final salary and career average schemes have their own rules. Some allow partial or flexible retirement, where you take part of your pension while continuing to work, often with reduced hours. Taking benefits before the scheme’s normal pension age usually means a reduced pension. Ask your scheme administrator what is possible before you change your hours, because part-time service can also affect how your pension builds up.

Where the State Pension fits

The State Pension can’t be phased in the same way. You can’t take it before State Pension age, which is 66 now and rising to 67 for anyone born between 6 March 1961 and 5 April 1977, and you can’t take part of it. The full new State Pension is £241.30 a week.

What you can do is delay claiming it. If you reached State Pension age on or after 6 April 2016, it increases by 1% for every 9 weeks you defer, just under 5.8% for every 52 weeks. Some people still working part-time choose to defer; others prefer the income. Once you reach State Pension age you also stop paying employee National Insurance on earnings.

The years before your State Pension starts are often the trickiest to fund. The bridge years looks at this in more detail, and the State Pension calculator shows your likely amount.

Tax traps to know about

The Money Purchase Annual Allowance

This is the big one for anyone still working. Once you take taxable income flexibly from a defined contribution pension, through drawdown income or an UFPLS, the Money Purchase Annual Allowance usually applies. It limits future tax-relieved contributions to defined contribution pensions to £10,000 a year. If you and your employer are still paying in, check this before your first withdrawal. Taking only tax-free cash into drawdown does not usually trigger it.

Withdrawals stack on top of your salary

Taxable pension withdrawals are added to your earnings for the year. A large withdrawal while you are still working can push some of it into a higher tax band. Spreading withdrawals across tax years can help. Our pension tax calculator shows how different withdrawals might be taxed.

Emergency tax on the first payment

The first flexible withdrawal is often taxed using an emergency tax code, which can mean too much tax is taken at first. Any overpayment can usually be reclaimed from HMRC or is adjusted later in the tax year.

An example glide

Here is one illustrative shape. It is not a recommendation, and everyone’s numbers are different.

1. Stage one: dial down to 80% in your late fifties. Take-home pay falls a little; savings and pensions are left untouched.
2. Stage two: a few years later, dial down to 60%. If needed, top up income with savings or some tax-free cash, keeping an eye on the Money Purchase Annual Allowance.
3. Stage three: stop work around State Pension age, or carry on a little longer if you enjoy it, with the State Pension and private pensions together covering your spending.

The glide planner lets you sketch your own stages, and the pension age checker shows the dates that matter for you.

How to plan it, step by step

1. Check your dates. Find your minimum pension age, any scheme retirement ages and your State Pension age.
2. Decide how much to dial down. Choose a share of full-time, such as 80% or 60%, and a rough timeline for later steps.
3. Work out the income gap. Compare your new take-home pay with your spending to see whether you need to top it up.
4. Choose how to fill any gap. Look at savings, staged pension withdrawals or other income, and how each is taxed.
5. Ask your employer. Make a flexible working request or ask about phased retirement options, and agree a review date.
6. Review each year. Check your income, tax and plans regularly and adjust the next step.

Pension Wise offers free, impartial guidance appointments for people aged 50 or over with a defined contribution pension, and MoneyHelper has free help on all pension types.

Pros and cons

What can work well

• Your savings have fewer years to cover, and may keep growing for longer.
• You keep the people, structure and purpose of work while building a life outside it.
• You get to test retirement before it’s final, and you can change course.
• Spreading pension withdrawals can make better use of tax allowances.

What to watch for

• Lower earnings mean lower pension contributions from you and your employer.
• Taking taxable pension income can trigger the Money Purchase Annual Allowance.
• Part-time roles can creep back towards full-time workloads.
• Not every employer or scheme offers the flexibility you want.

Questions people ask