As thousands of retirees head back to work, here are the pros and cons of “unretirement”

businessman sitting outside with laptop

Your retirement is a time you may have been working towards for years. It’s your chance to relax, tick all those items off your bucket list, pursue your passions, and spend more time with family.

However, research has revealed that nearly 1 in 10 retirees have returned to the workforce or are considering doing so after retirement – for a combination of practical and emotional reasons.

A study reported by MoneyAge reveals that 4% of retirees have already started work again in some form, while a further 5% are considering doing so.

A 2017 study by the University of Manchester went even further, suggesting that around 1 in 4 retirees in the UK return to work or “unretire”, mostly within five years of retiring.

If you’re considering heading back to work, read on for some of the pros and cons.

“Unretiring” can help to supplement your income in later life

It’s likely that, over the last few months, you’ve seen your expenditure rise. Inflation has hit a 40-year high, driven by soaring food, energy, and fuel prices while rising interest rates and National Insurance contributions may have also had a negative effect.

Indeed, the research published by MoneyAge shows that 42% of over-55s felt worse off than this time last year, with only 6% feeling better off. Over half (53%) said they were paying more for food in their weekly shop, with 2 in 5 paying more for heating and electricity.

Furthermore, this situation is only likely to get worse, with energy prices set to rise sharply again in the autumn.

One of the key benefits of “unretirement” is that you will be able to supplement your income. Working part-time, in a consultancy capacity, or even starting your own business can have three positive effects on your finances:

  • Additional disposable income to meet rising costs
  • You potentially won’t have to draw as much from your pension, meaning your fund may last you for longer
  • You may be able to make additional pension contributions from your income, boosting the value of your fund (subject to tax rules – see below).

If you’re concerned about whether you have “enough” to retire, talk to us. We can build a cashflow model for you to establish whether your assets will sustain your lifestyle during retirement, and we can also consider how supplementing your income by “unretiring” now could help you to achieve your longer-term aims.

Heading back to work can have mental health benefits

When you’re approaching retirement, it’s important to consider both the financial and the emotional implications of ending what might have been a 30- or 40-year career.

While the prospect of filling your time with all those things you’ve yearned to do is appealing, many retirees find they can lose their sense of purpose, or even their identity, when they retire.

Your work may have formed an integral part of who you are, so giving that up can leave you with feelings of loss or even loneliness.

“Unretiring” – even on a part-time or infrequent basis – can sometimes offer mental health benefits. The interaction with colleagues or clients can give you something you otherwise miss, and boost your sense of self-worth and purpose. However…

…heading back to work can disrupt your work-life balance

It’s likely that, when creating your financial plan, you highlighted several goals that you wanted to achieve in later life. These could be anything from travelling the world to spending more time with your children or grandchildren.

Most people have a reason they want to retire. So, heading back to work – even for valid reasons – could have the knock-on effect of disrupting the work-life balance you worked hard for decades to achieve.

While there are many benefits to unretirement, you should think carefully about whether it will still enable you to do all the things you have planned for.

Your pension contributions could be restricted

As you read above, heading back to work could help you to boost your pension fund by making contributions from your income.

However, if you supplement your income by flexibly drawing from your pension, you may face a restriction on the amount of annual pension contributions you can make tax-efficiently.

You receive tax relief on any contributions you make to your pension up to the Annual Allowance (£40,000 in the 2022/23 tax year) or 100% of your earnings, whichever is the lower. This sum includes money you contribute in addition to any payments made by third parties, such as your employer.

Once you begin accessing your defined contribution pension flexibly, the Money Purchase Annual Allowance (MPAA) kicks in and reduces the £40,000 Annual Allowance to just £4,000.

So, you’ll only get tax relief on £4,000 of pension contributions, vastly reducing the amount of tax relief you can benefit from.

If you’re considering returning to work, talk to us about the best way to create an income while continuing to benefit from generous tax relief on any further pension contributions you want to make.

Read more about the MPAA and how it can affect you.

Get in touch

If you are thinking of “unretiring” and you’d like to discuss the implications for your financial plan, please get in touch. Please email or call 01454 416653.

Please note

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results. 

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.  

All contents are based on our understanding of HMRC legislation, which is subject to change.

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