He will finish up in April next year just after his 64th birthday.
Announcing his retirement he said: "In the summer of 2015 I will have been ordained for over 40 years.
"As I reflect on those years I can honestly say that they have been life-giving and joyous.
"Liz (wife) has shared all but two of those years, enthusiastically embracing and contributing significantly to my ministry across the country.
"We have both been feeling that the time for the next phase in our life together is approaching. Being able to spend more time together will enrich us both."
Bishop Peter served in the Diocese of Bath and Wells as an Archdeacon before being made a bishop.
He also looked after the diocese while it appointed a new bishop.
Rt Revd Peter Hancock, Bishop of Bath & Wells said: "Since I arrived in the diocese Peter has been a wonderful colleague and friend, and I know that many people across the diocese have valued his pastoral care, guidance and support.
"He and Liz will be greatly missed when they retire, but we wish them God's blessing for their future."