The UK continues to grapple with a cost of living crisis in 2023. In many cases, this is driving older people out of retirement and back into the workforce to try and maintain financial stability. Yet is “unretirement” a good idea? How can it be done sensibly? In this guide, our Carlisle financial planners explore ways that retired people can return to work in 2023, whether this is on a part-time or full-time basis.
What is “unretirement”?
Unretirement is a phrase to describe people who have retired (e.g. claiming a pension already) but who pick up paid work. An individual might work part-time whilst continuing to receive pension benefits. For example, your income base might comprise your State Pension, a final salary pension, some buy to let income and a small salary from a part-time job. Others might stop claiming their pension entirely for a time (e.g. stopping withdrawals from flexi-access drawdown) and rely on a full-time position to cover their monthly expenses.
Why would someone go back to work after retiring?
Some people return to work after retirement out of a sense of necessity – particularly those on lower pension incomes. According to the OBR (Office for Budget Responsibility), real household income in the UK is projected to fall by a cumulative 5.7% over 2022-23 and 2023-24. As such, this would represent the biggest real-term drop since records began in 1956-57. Higher prices for food, energy, and housing are putting more financial pressure on households – including those with retired people residing. Picking up some hours at a local supermarket, for instance, could help older workers supplement their pension income if their finances are struggling. Others may wish to return to work for personal or emotional reasons. Perhaps they miss having colleagues or the sense of purpose or routine that a career can offer.
Can I go back to work after retiring?
When you retire, there is no UK law prohibiting you from ever working again. Employment laws also disallow employment discrimination on the basis of age (e.g. when applying for a job). Yet you may find, in practice, that it is not always easy to find work as an older person. Perhaps you have lower energy levels or health issues which will render certain roles too exhausting. Despite anti-discrimination laws, moreover, many older workers still feel discriminated against during the recruitment process. Employers might say you have “too much experience” or claim that you will not remain long in the job (due to returning to retirement).
This is not intended to discourage you from returning to work if you are retired. Yet it can help to be aware of potential obstacles that may arise. Undeniably, “unretiring” can be very rewarding and worthwhile for many people. You may find it easier to get back into work if you retain strong contacts in your previous career. Starting up a side business can also be attractive, letting you be your “own boss” and set your own working hours.
How do I re-enter the workforce in a wise manner?
Coming out of retirement can have important implications for the rest of your financial plan. So it helps to discuss your ideas and options with a financial adviser to ensure that you do not harm your long-term goals inadvertently.
Firstly, it helps to consider whether you are ready to re-enter work. You may have grown used to a slower pace of life in retirement with fewer obligations. Are you prepared for the commitments that employment entails (e.g. commuting, working in a team etc.)? For some people, picking up a small number of hours per week can be a good way to “test the water” and see how you react. Be careful not to take on too much, too quickly. Secondly, if you feel compelled to return to work for financial reasons, speak with an adviser about whether this is truly the case. It might be that you may have more options than you realise, with some careful financial planning.
Assuming you are ready to start working again, think carefully about the potential impact on your wider financial plan – particularly your pension. One advantage of returning to work is that it can reduce your need to make pension withdrawals to sustain your lifestyle (relying on your earnings instead). This can allow your pension to stay invested and grow more. Working can also give you the chance to build up your National Insurance (NI) record even further. If you do not currently have 35 qualifying years on your NI record, for instance, then working towards this (via the PAYE system with your employer) can give you a better State Pension deal.
However, watch out for potential financial planning “pitfalls” when returning to work such as the Money Purchase Annual Allowance (MPAA). This rule stipulates that your annual allowance for pensions is reduced to £10,000 per year when you trigger it – e.g. when entering flexi-access drawdown. This means that you may not be able to contribute as much to your pension as you did in the past and still claim tax relief. Also, be mindful of your tax bill when returning to work. Any earnings are likely to be added to your pension income when determining your income tax rate. This could push some people into a higher tax bracket if they are not careful. Again, seek financial advice to ensure your goals and interests are protected.
If you would like to discuss your financial plan and retirement strategy, then we would love to hear from you. Get in touch with your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.
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This content is for information purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.