Partial retirement allows pension scheme members to take some or all of their pension and tax-free lump sum and continue working, as part of their gradual move away from work and into retirement.

Some people feel that they must keep on working full-time as they can’t afford to reduce their hours. Partial retirement offers a way around this issue by allowing you to reduce your hours or salary and take some or all of your pension and continue working at the same time. You can also decide how much pension and tax-free lump sum you want to take.

This means that you have a combination of earnings and pension for a period before you fully retire. During this period, you can also build up further pension by continuing with your contributions, buying added pension or making additional voluntary contributions. This will be paid when you take full retirement.

Age for partial retirement

Provided you meet the job reshaping conditions, you can take partial retirement from age 55, or 50 if you joined classic, classic plus or premium before 6 April 2006.

If you take your benefits before your normal pension age, they will be reduced to take into account the early payment. You can continue  working in your reshaped job and building up further pension. Find out more in our .

Your pension could be reduced by around 5% for each year you retire before your pension age. For example, if you retired 2 years before pension age, it would reduce by 10%. Use the partial retirement calculator to see how much your pension could reduce by.

The early payment reduction is permanent, so please consider carefully whether you can afford to live on the reduced pension.

Tax free lump sum

With partial retirement, you can take a tax-free lump sum based on the amount of pension you choose to take. Read how this is calculated in the relevant scheme guides.

When you fully retire, your lump sum will be based on the extra pension you receive at this time, not on your total pension. If you decide not to take a lump sum on partial retirement, you cannot carry over any unused lump sum entitlement and use it when you finally retire.

Example:

Mo takes partial retirement when he’s 65 and his initial nuvos pension entitlement is £14,000 per year. He could take a cash lump sum of anything up to £60,000 but he decides to maximise his income and take no lump sum at all.

Mo decides to retire at 72, with a remaining nuvos pension entitlement of £7,000 a year. He now has the option to take a lump sum of anything up to £30,000. He cannot opt to use the lump sum entitlement he had when he took partial retirement.

Conditions for taking partial retirement

1. Reshape your job

To take partial retirement, you must agree with your employer to reshape your job so that your salary reduces by at least 20% until your final retirement.

You could do this by reducing your hours or reducing your salary. This could mean a lower grade role with fewer responsibilities.

Example:

Henry earns £30,000 a year. He’s 62 and expects to retire at 65 but wants to ‘wind down’ gradually. If Henry wants to partially retire, he will need to agree with his employer to reshape his job in a way that reduces his earnings by at least £6,000 a year to no more than £24,000 a year.

2. Apply within three months of reshaping your job

You must apply to take your partial retirement pension no later than 3 months after reshaping your job.

3. Don’t apply multiple times

You can only apply for partial retirement once.

4. Guaranteed Minimum Pension (GMP)

If any of your pension was built up before April 1997, you may need to take sufficient pension to cover any Guaranteed Minimum Pension (GMP) and/or sufficient lump sum to cover any Widow’s Pension Scheme (WPS) liability. 

GMP reflects the pension you would have built up if you had been in the State Earnings Related Scheme (SERPS) rather than an occupational pension.

WPS liabilities are an issue for a few members of classic. The liabilities arose for some men who joined the scheme before 1972 and some women who joined before 1987.

Example

Raj is 61. He has built up 30 years of reckonable service in the classic pension scheme. This gives him a pension of £9,000 a year, plus a lump sum of £27,000.

Raj doesn’t want to fully retire yet. He agrees with his employer to reshape his job by going part-time, which reduces his pay by £10,000 a year. He opts for partial retirement and chooses to take a pension of £6,000 a year plus a lump sum of £18,000, meaning he takes two-thirds of his benefits.

Raj’s reckonable service will be reduced by 20 years, or two-thirds. The remaining 10 years, plus any further reckonable service built up before his final retirement date, will give him a pension based on his pay at the time when he fully retires.

Applying for partial retirement

Step 1
It is important to think about partial retirement carefully, consider:

  • What income do you need to live on, both now and when you fully retire?
  • Will partial retirement give you the right work-life balance?
  • What are the things you like, or would like to change about coming to work?

The partial retirement calculator may help you understand the financial implications.

Step 2
Talk to your employer and see if it is possible for you to agree a reshaped job. They are likely to want to have discussions well in advance of you starting your reshaped job.

Step 3
Once you have agreed the details of your reshaped job, apply using the Partial Retirement Application Form (CSP15) and pass to your employer. You must do this no later than 3 months after starting your reshaped job.

Step 4
Study the pension quote we send to you and decide how much pension you want to take. You can take any amount of your pension up to the maximum amount quoted. If you’re in classic, classic plus or premium, you can only take any added pension if you choose to take all of your pension benefits.

Things you need to think about

Abatement

The combination of earnings and pension for partial retirement must not be more than your previous earnings, known as your salary of reference.

If it is, your pension may be reduced through abatement.

Your salary of reference would usually be your pensionable earnings from the last 12 months before your partial retirement. If you earned more in a previous year, it might be based on a different period. For abatement, it is assumed that you take the standard lump sum. Read the scheme guides for more information.

Find out more about abatement

Example of abatement

Jane has built up a pension of £7,000 a year in nuvos and decides to take the full pension during partial retirement. Jane’s salary of reference is £20,000 a year and her new salary is £15,000 a year.

Jane is assumed to have taken a standard lump sum of £7,000 x 2.25 = £15,750. This would reduce Jane’s pension to £5,688 a year and this is the figure that is used for the abatement test.

Jane’s new salary (£15,000) plus her pension (£5,688) exceed her salary of reference (£20,000), so her pension will be reduced (abated) by £688 a year to bring her new earnings in line with her salary of reference. This level of abatement applies regardless of the lump sum Jane decides to take. When Jane finally retires, the abatement will stop and Jane will receive her full pension amount.

Final salary

If you are in one of these final salary pension schemes (classic, classic plus or premium), partial retirement will reduce your reckonable service in the years before you fully retire. Depending on your personal circumstances and your pension scheme, partial retirement may affect your final salary. Reshaping your job by either reducing your hours or moving to a role with fewer responsibilities can also have an impact.

Your final pension will be made up of 2 parts:

  • the pension you take on partial retirement will be calculated on your pensionable earnings at that time. This part of your pension will go up with rises in the cost of living from the date of your partial retirement
  • the extra pension you take on final retirement will be based on your new service length, plus any reckonable service which you don’t take on partial retirement and will reflect your pensionable earnings when you fully retire.

The partial retirement calculator may help you understand the effects of partial retirement for you.

When calculating your pension, your pensionable earnings may not be your salary from the last 12 months, it will be based on your best year. The definition of best year and how far back your best year might be will vary between pension schemes. Find out more in the scheme guides.

Examples of the effects of partial retirement on your final salary

Example 1

Ahmed is in classic. He decides to reshape his job by reducing his hours when he reaches 60 and takes partial retirement. He builds up further service before he finally retires at 62.

Ahmed’s partial retirement pension is based on his pensionable earnings at 60. His final retirement pension at 62 is based on the full-time equivalent of his pensionable earnings at that time. Depending on Ahmed’s pay rises in his final 2 years of work and cost of living increases, his pensionable earnings on final retirement might be more or less than his pensionable earnings at 60.

Example 2

Lizzie is in premium and reshapes her job for partial retirement by moving to a less demanding job on a lower salary when she’s 61. Lizzie chooses to take all her pension at this point and carries on working until she is 65. Because premium looks back for a number of years at the best year for pensionable earnings, it may be that Lizzie’s final pension will be based on her earnings before she changed jobs.

If Lizzie had been in classic, her final pension would not reflect her higher earnings before she changed jobs. If Lizzie was in nuvos or alpha, her benefits would reflect the pensionable earnings you get each and every year. 

Partial retirement after re-employment

If you are a classic member, and you previously worked in the Civil Service and left with a pension preserved for payment later, you will have been given a choice in 2006 to keep your two pensions separate or combine the two periods of service for one pension, known as aggregation. If you did not choose the aggregation option, you will get another option when you take partial retirement. This will be your last chance to aggregate.

If you are a classic member and have already been re-employed on or after pension age, you may take partial retirement, but the special re-employment provisions in classic which allow pensions on final retirement to be based on the better of pensionable earnings on earlier retirement and final retirement, will not apply.

If something happens after partial retirement

If you die in service or take ill-health retirement after partial retirement, the benefits payable may be less than what would have been payable if you had not taken partial retirement. We will not enhance any pension payable, and any lump sum payments on death in service will take account of any lump sums paid when you drew benefits on partial retirement.

Example 1

Andrew is in premium. He takes partial retirement at 60 and then dies in service 3 years later, aged 63. Andrew took all of the pension he built up as partial retirement and exchanged some of it for a lump sum of £30,000.

Andrew’s salary after partial retirement is £20,000 a year and his partial retirement pension (after exchanging some for a lump sum) is £8,000 a year. He also built up a further pension of £1,000 a year in the 3 years since partial retirement.

Andrew’s widow (his nominee for death benefits) will receive the better of:

  1. a) the lump sum “guarantee” payable on death soon after retirement
  2. b) the death in service lump sum.

a) Lump sum guarantee

This is worked out as the balance of 5 years’ partial retirement pension not yet received, plus 5 years’ worth of the pension Andrew had built up but not yet taken. In this case, it works out as:

2 years’ worth of partial retirement pension not yet received (2 x £8,000) = £16,000 + 5 years’ pension built up but not yet taken (5 x £1,000) = £5,000

Total = £21,000

b) Death in service lump sum

The death in service lump sum in premium is 3 times the salary minus any lump sum paid on partial retirement. In this case, it would be:

3 x salary (3 x £20,000) = £60,000 - lump sum taken on partial retirement = £30,000

Total = £30,000

The death in service lump sum is greater, so Andrew’s widow would receive a lump sum of £30,000.

As well as the lump sum, Andrew’s widow will also get a pension of 37.5% of Andrew’s partial retirement pension (before any reduction in exchange for a lump sum) plus 37.5% of the further pension Andrew had built up when he died. Andrew’s service will not be enhanced in any way.

Example 2

Janet is in classic. She takes partial retirement at 60 and then dies in service 1 year later, aged 61. Janet took a pension of £15,000 and a lump sum of £45,000 on partial retirement.

Janet’s salary after partial retirement is £25,000 a year. She has also built up further pension in the 1 year since partial retirement. The value of this, together with the pension she didn’t take at partial retirement, amounts to £4,000 (plus a lump sum of £12,000).

Janet’s widower (her nominee for death benefits) will receive the better of:

  1. a) the lump sum “guarantee” payable on death soon after retirement
  2. b) the death in service lump sum.
  3. a) Lump sum guarantee

This is worked out as the balance of 5 years’ partial retirement pension, minus the pension and lump sum already received, plus 5 years’ worth of the pension that Janet had built up but not yet taken.

This would be:

5 years’ worth of partial retirement pension, minus pension and lump sum already received [(5 x £15,000) - £15,000 - £45,000] = £15,000 + 5 years’ pension built up but not yet taken (5 x £4,000) = £20,000

Total = £35,000

b) Death in service lump sum

The death in service lump sum in classic is 2 times the salary, minus any lump sum paid on partial retirement.

This would be:

2 x salary (2 x £25,000) = £50,000 - lump sum paid on partial retirement = £45,000

Total = £ 5,000

In this case, the lump sum guarantee is the greater, so Janet’s widower would therefore get a lump sum of £35,000.

As well as the lump sum of £35,000, Janet’s widower will also get a pension of 50% of Janet’s partial retirement pension (before any reduction in exchange for additional lump sum) plus 50% of the pension Janet had built up when she died but not yet taken. Janet’s service will not be enhanced in any way.

Redundancy

Partial retirement will not affect any service you have built up which is then used to decide whether you are eligible for early retirement benefits under the Civil Service Compensation Scheme.

However, partial retirement will affect the service which is used to calculate the amount of your early retirement benefits. Your early retirement benefits would be based on your new service, plus any reckonable service you didn’t take on partial retirement. Any reckonable service you took on partial retirement would therefore not count towards your early retirement benefits.

As a minimum, you would receive a compensation lump sum equal to the amount payable under the statutory redundancy payments scheme. This would be worked out using all your service (including the service you took on partial retirement).

Published:
20 December 2021
Last updated:
27 May 2022