Most people now favour a gradual transition into retirement rather than a traditional ‘hard stop’, research from Aegon has revealed, but it warned that fears over possible Budget changes to pension tax rules were prompting snap decisions that could ‘backfire'.

According to Aegon’s latest Second 50 report, fewer than a quarter (24 per cent) of workers expect to stop working altogether when they reach retirement age.

By contrast, 43 per cent expect to change the way they work, 15 per cent plan to continue working as they currently do, and 9 per cent anticipate moving into a new role.

Aegon pensions director, Steven Cameron, said the findings reflect a "significant cultural shift" in how people approach later-life work and retirement.

“Today’s retirees are approaching retirement very differently from previous generations,” he explained.

“While historically it was common to work ‘9 to 5’ up until a fixed retirement age, nowadays people have much more flexibility."

The findings also reflect a growing under-saving crisis, with a fifth (21 per cent) of Gen Z survey respondents stating that they currently have no retirement savings, compared to 15 per cent of Boomers who are yet to retire and who reported the same.

However, Cameron warned that fears over Budget changes to pension rules could be discouraging a more flexible approach, causing some savers to make “snap decisions” that could backfire.

There has been growing concern over the impact of Budget speculation on saver behaviour, after data from the Financial Conduct Authority (FCA) revealed that there has been a significant increase in the amount of money being withdrawn from pensions, with a particular "surge" seen in those accessing large pension pots.

Whilst the Pensions Minister, Torsten Bell, has dismissed the early rumours as "nonsense", industry experts have speculated that the recent reports that Chancellor Rachel Reeves could cut the 25 per cent tax-free allowance could nevertheless prompt a further increase in people taking their lump-sum.

“This year, like last, we’re seeing some people taking their tax-free cash lump sum earlier than they would otherwise have, often accompanied by starting to take a retirement income sooner - something they could later live to regret,” he said.

Meanwhile, while not widely known, many pensions allow members to take their tax-free cash in instalments over several years, potentially helping to manage income levels and tax exposure more effectively.

However, Cameron stressed that such planning depends on confidence in a stable pension system.

“It’s hard to plan such a transition unless the rules and tax treatment of pensions are stable,” he added.

“We urge this and any future governments to prioritise creating a stable environment that provides people with the confidence to plan long term for their hard-earned retirement.”

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