Some advice on unretiring and retiring early

Pensions experts Options for Your Tomorrow give some advice to those thinking of retiring early as well as those looking to get back to work after retiring due to the cost of living crisis.

Older couple smile looking at a tablet over lunch


The news has been full of ways to encourage older people who have retired early to go back to work recently, especially in relation to measures introduced in last month’s Budget. At the same time a lot of people are looking at whether drawing down from their pensions early and working part time is a financially viable option. All of this raises lots of questions – so we asked pensions experts Options For Your Tomorrow to explain some of the main points to consider. Some UK retirees are thinking about going back to work due to the rising cost of living. What are the main issues that retirees should consider before making the decision to return to work?

Options For Your Tomorrow: This is not a new phenomenon, but there are two interesting trends happening now. Firstly, there has been an increase in the number of individuals choosing to carry on working beyond retirement age as well as others returning to work after retiring due to the rising cost of living. For retirees thinking about returning to work there are a number of important issues to think about:

 is returning to employment (whether it be part time or full time) the right thing for them from a health point of view, whether that be their physical or mental wellbeing?
 what training do they need for the jobs/careers they may seeking?
 would a flexible role which allows them to work from home be more in line with what they need?
 what impact will it have on their finances – on this point it’s important to get professional advice regarding income tax, pensions and any state benefits that the individual may be receiving, or be entitled to claim.

Another important consideration is that many retirees are also carers, whether it be looking after grandchildren to allow their children to return to work and save on childcare fees or support, or caring for elderly parents.

It will be interesting to see whether the announcements in the Budget have an impact on getting people back into the workplace by encouraging them to earn more and have a more secure financial future when they retire for good. The Office for Budget Responsibility (OBR – the UK Government’s independent economic forecaster) says that the Budget measures should increase employment by 15,000 workers. However, that figure has been described as ‘optimistic’ by the Institute for Fiscal Studies (IFS) which thinks that the measures are unlikely to make a significant difference in terms of increasing the UK workforce. Time will tell.

WW: For those who are interested in drawing down from their pension early and working part time to top up their income, what should they consider so they reduce the risk of ending up in poverty in old age?

OFYT: Since pensions freedoms came in there have been a lot of individuals who have accessed their pension pots by taking the Pension Commencement Lump Sum or PCLS (which means 25% tax free) then taking the remainder as pension income and paying base rate tax. For those who are higher rate tax payers, they need to declare their income on their self-assessment return.

Unfortunately, many retirees who draw down early find that after taking well-earned holidays, buying a new car and other spending to enjoy the lifestyle they have worked hard for, they end up living in poverty in later years. The rapidly rising cost of living increases those risks. Hindsight is a wonderful thing, but there is a valid point of view which suggests that pensions freedoms were not the best idea.

In that context, there is a strong argument in favour of working longer if at all possible because, for example, another 10 years of contributing to pension pots via sound investment strategies would make a big difference to most people’s financial security in retirement.

Pension policies from all governments have, generally speaking, fallen short and failed to keep pace with the needs of the majority of workers. Even the recent Budget changes regarding the lifetime allowance, and increasing the annual allowance, do not affect the majority of people who are currently having financial difficulties.

It’s also important to consider that the UK state pension, for most people, is unlikely to meet their lifestyle expectations in retirement. Also, a decision to increase the state pension age to 68 will be taken in 2026, having recently been delayed. If that change is introduced it would mean those who were born after 5th April 1977 (and who are entitled to receive a state pension) would be the first cohort to retire at the age of 68. Some experts (such as the International Longevity Centre UK) even think the UK State pension age could be 70 by 2040. That means anyone who is in their mid-50s now (and planning to rely on the state pension to provide all, or a major part of, their income when they retire) may have no choice but to carry on working longer than they would wish to.

Against this backdrop, it makes more sense than ever to think about private pensions if you want to have peace of mind about your plans to have a happy and financially secure retirement for yourself and your family. It’s always a good idea to carry out a regular ‘MOT’ on your existing pension plans. Click here to read a useful Options for Your Tomorrow guide to help you do that.

These are just some of the main issues to consider, but, of course, everyone’s individual circumstances are unique, so it’s essential to get professional advice before making decisions that will affect your financial future. If you need professional advice, has a list of regulated independent financial advisers. The Money & Pensions Service (which is sponsored by the UK Government’s Department for Work and Pensions) is also a useful resource.

*This article was written by Options for Your Tomorrow.

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