Thinking of unretiring or delaying retirement? Here’s what to consider

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Morgan Laing

March 29, 2023

5 mins read

According to our research, the cost-of-living crisis has played a part in people going back into the workforce or staying in work for longer. If you’re pondering either of these options, here are some things to keep in mind.

What does ‘unretiring’ mean?

If someone retires, that normally means they’ve chosen to stop working. People don’t have to just stop working suddenly – you might reduce your hours first. 

It’s often possible to take money from your pension plans while you’re working. You can usually take your money from the age of 55 (due to rise to 57 from 6 April 2028).

‘Unretiring’ means coming out of retirement and returning to work. People who unretire may have already started accessing their pension savings by the time they head back into employment.

There are various reasons why someone may choose to unretire. You might do it because you miss the social side of work, or you miss work itself. Or your decision might be to do with money.

Our recent Retirement Voice report shows more than one in ten retirees over the age of 65 have chosen to unretire. It also shows women are more likely than men to unretire for financial reasons. 36% of women who returned to the workforce said they did so because their pension benefits didn’t give them enough to live on.

The potential benefits of unretiring

You’ll earn an income

When you unretire, you’ll get an income from work again. This could help you afford your outgoings. It might be particularly helpful if you feel your pension savings or State Pension haven’t been enough.

You could stop or defer your State Pension – and take less money from your pension plan

If you’re earning an income, you might decide you’re in a position to stop or defer your State Pension. 

This might mean you get larger payments when you do start claiming the State Pension, which could suit you depending on your circumstances. It won’t be right for everyone, though. Visit MoneyHelper for more information about stopping or deferring your State Pension

Equally, you might decide to take less money from your workplace or personal pension plan – meaning you could potentially have more in your plan in the future. But remember, a pension is an investment and its value can go down as well as up and may be worth less than was paid in.

You can stop or adjust your withdrawals if you’ve opted to take a flexible income (drawdown). If you have a guaranteed income for life (annuity) in payment, you won’t be able to stop or make changes to it.

You could be enrolled in a workplace pension plan

If you go back into the workforce, your employer needs to automatically enrol you into a workplace pension plan, provided you meet certain criteria. For example, to be eligible for auto-enrolment, you need to be under State Pension age. This is currently 66 (rising to 67 by 2028, with further increases planned beyond this). 

At least 8% of your qualifying earnings needs to be put into your workplace pension plan – typically a 5% minimum from you and a 3% minimum from your employer. This can help boost your pension savings. You can get tax benefits, too.

Things to be aware of

You might end up in a higher tax band

Your State Pension and the money you take from your pension pot count as income (although 25% of your pot is usually tax-free).

Returning to work could push you into a higher tax band. This could be especially true if you’re earning an income while taking money from your pension plan or receiving the State Pension.  

Your own personal circumstances, including where you live in the UK, will have an impact on the tax you pay. Laws and tax rules may change in the future.

You could affect your annual allowance

Your annual allowance is the total amount that can be paid in across your pension plans in a tax year before you have to pay an extra tax charge. The standard annual allowance is currently £40,000, but it’s increasing to £60,000 from 6 April 2023.

If you take taxable money from your pension plans – either through taking a flexible income or withdrawing lump sums – your annual allowance usually reduces. In other words, you trigger the money purchase annual allowance.

This could be really relevant to you if you’ve already accessed your pension savings but intend to go back to work and keep saving into a plan.

Right now, triggering the money purchase annual allowance typically means your annual allowance reduces to £4,000. But in his Spring Budget, the Chancellor announced this’ll increase to £10,000 from 6 April 2023. 

Overall, if you’ve already accessed taxable money from your plan, you’ll soon be able to pay in more before facing a tax charge – but your annual allowance will still be reduced.

What does delaying retirement mean?

Delaying retirement means staying in work for longer than you’d planned.

Our Retirement Voice report shows more than one in ten people approaching retirement have delayed their retirement plans due to the cost-of-living crisis.

More over-65s than last year think they’ll have to keep working beyond State Pension age.

The potential benefits of delaying retirement

You’ll continue earning money

You’ll earn money for as long as you stay in your job.

Again, this could even lead to other potential benefits – for example, you might be in a good position to defer your State Pension or hold off taking your pension savings.

You could give your pension pot more chance to grow

If you delay taking your pension savings, your plan might see more growth from your investments than if you’d taken your money earlier. 

If you have a workplace pension plan, your employer will normally keep paying into it while you’re working.

Don’t forget, your pension plan usually comes with tax benefits, like tax relief. This can all add up over time. 

You can use our pension calculator to see what your pot’s value might be when you retire.

And from the start of the new tax year, you won’t have to worry about breaching your lifetime allowance. This is the total amount you can build up across all your pension savings in your lifetime without facing a tax charge when you take them. It’s currently £1,073,100.

Previously, if you delayed taking your pension savings, it would be more likely that your pot’s value could creep closer to the lifetime allowance. But the Chancellor recently announced that the lifetime allowance will be removed entirely. So you won’t face a lifetime allowance tax charge as of 6 April 2023. This might make staying in work more appealing.  

But it is worth noting that the maximum amount of money most people can take tax-free from their pot is still 25% of £1,073,100, which is £268,275.

Things to be aware of

You could affect investments, guarantees and benefits

Your pension plan likely has a retirement date on it. That’s when you’re expected to start taking your pension savings, although you don’t have to take them then. 

You’ll need to update your retirement date if you’re delaying your retirement. Check how this process works with your pension provider. You can sometimes affect guarantees (like guaranteed annuity rates) by changing the date, so check this with your provider too. 

Your retirement date can affect your investments the nearer you get to it, so you may wish to review these.

Tax treatment of pension plans change when you reach age 75. You stop getting tax benefits on payments into your plan, for example. Some providers won’t allow payments in your plan if you’re over 75. And death benefits (money that may be paid out from your pension pot after your death) become taxable if you die after age 75. 

Help and resources

Unretiring or delaying retirement are big decisions.

When making decisions about your retirement, it’s helpful to know your pension plan’s value. If you’re a Standard Life customer, you can check this on our app or online.

We know people are dealing with increased financial pressures now. For practical tips and resources to help you with your finances, you can visit our support with everyday money worries page.

If you’re over 50 and want more help when it comes to your pension savings, you can get free, impartial guidance from Pension Wise, a service from MoneyHelper.

The information here is based on our understanding in March 2023 and shouldn’t be taken as financial advice.

A pension is an investment and its value can go down as well as up and may be worth less than was paid in.

Your own personal circumstances, including where you live in the UK, will have an impact on the tax you pay. Laws and tax rules may change in the future.

Standard Life accepts no responsibility for information in external websites. These are provided for general information.

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