Dropping to four-day week cuts pension by seven years

The pandemic has revolutionised the way we work and many people have opted for more flexible and part-time work. But switching to a four- day week could wipe seven years’ worth of retirement income off your pension.

One-in-four workers in Britain are hired on a part-time basis, according to the figures from the Office for National Statistics. However, this number is set to rise further. There has been a 27pc rise in searches for part- time work since the first lockdown, suggesting a growing trend, according to job website Indeed.

Meanwhile, searches for part-time remote work have soared by 2,000pc.

Reducing working hours can have

‘Before embarking on a reduced week people need to understand how much it could cost them’

a serious impact on the size of your pension by the time you retire, figures compiled for Telegraph Money have shown. Cutting down to a four- day week would reduce earnings by one fifth and this would mean the pension pot built up during that time would be at least one fifth smaller, too. This can grow to tens of thousands of pounds.

A 20-year old earning £ 25,000 a year and making a typical 8pc contribution into their pension would retire with £394,853 at age 67 if they worked full-time. However, their pension wealth would fall to £315,883 if they worked part-time as their earnings reduce to £20,000, according to analysis from Canada Life, a pension provider. This assumes a yearly investment growth of 5pc.

The pension cost of a shorter week would amount to £ 78,970 if they earned £ 25,000 over the course of their working lives. That amounts to over seven years’ worth of income in retirement. The more you earn, the bigger the shortfall.

Andrew Tully, of Canada Life, said: “Before embarking on a reduced week it’s important that people understand the financial impact it can have, particularly on their pension pot.”

Those who do decide to go ahead with part-time work should consider whether they can increase their contributions, Mr Tully added.