Flexible retirement arrangements to be permitted under new government legislation could create a win-win situation for employers and staff.

Flexible retirement can be beneficial to anyone. Employees are able to reduce their pace of work while continuing to contribute to their pension fund, and companies gain from the retention of key skills and experience.

According to research retiring five years early could reduce a final salary pension by 40%.

Someone who joins a 1/60 final salary scheme aged 30 and earning £40,000 a year at retirement would receive an annual pension of £23,333 at 65. Yet retiring five years earlier could reduce the figure to just £14,000 a year.

Taking partial early retirement and working part time from aged 60 may be an attractive alternative, allowing you to reduce your hours while continuing to build up your pension savings.

Based on the above example, employees could receive a pension of £19,600 if they worked three days a week for five years before normal retirement. This is just 16 per cent less than they would have received if they had continued to work in full time employment.

Some pension schemes allow employees to work beyond normal pension age, usually on a part time basis. Using the example above, you could work part time from ages 65 to 68 and build up an annual pension of £27,000 – 16 per cent more than you would have received if you had retired at 65.