A guide to returning to work after retiring
A guide to returning to work after retiring
Did you know that, on average, one in four UK retirees eventually return to the workforce? With the country now facing a cost of living crisis in late 2022, many retired people believe returning to work (at least part-time) is their only way to make ends meet. One study suggests that 58% of 50 to 65-year-olds who left or lost their job during the pandemic would consider a return to work. Over the 12 months preceding July 2022, 116,000 over-50s showed an interest in looking for work (“economic activity”), the majority being men over 65.
Evidence certainly suggests that more people are opting for “un-retirement”, but this decision carries key financial planning implications that need to be carefully thought through beforehand.
Is it a choice or a necessity?
For some, returning to work is more of an emotional decision - a drive to be amongst colleagues, have a routine and a sense of purpose. Full retirement is a big life change and might not suit everyone after a lifetime of enjoying a fulfilling career. Loneliness and boredom can be difficult to combat in retirement. Yet the risk of this happening can be mitigated by planning for what’s ahead (e.g. reducing hours slowly rather than taking a “clean break”).
Others may feel like they have no option but to return to work for financial reasons. In this case, consider seeking financial advice before making the decision. It may be that other options are available which you may not have thought of (e.g. downsizing or equity release).
Check your scheme rules
Everyone has a unique income situation in retirement, with different pension schemes having their own respective rules. NHS doctors, for instance, typically need to retire from all NHS posts to start claiming their pension. However, provided at least 24 hours have elapsed since doing this there is no restriction on the hours they can work if former NHS workers then return to employment.
For teachers, however, their final salary pension may be affected if the pension and re-employment earnings exceed the “salary of reference”. In some cases, a pension may be suspended (e.g. if you originally retired on health grounds).
You are allowed to work whilst claiming your State Pension (assuming you have reached your State Pension age). In this case, you no longer need to make National Insurance (NI) contributions from your salary from the end of the tax year. However, you might need to pay income tax if your combined income - e.g. from your State Pension and salary - exceeds your Personal Allowance of £12,570 per year.
Make mental preparations
Adjusting to life in retirement can be a big transition after a long career. However, returning to work can also be a significant adjustment. In retirement, you may have had more time to spend with family, friends and pursuing hobbies. Returning to work can detract from these (depending on how many hours you work), and so this requires careful thought. How much are you prepared to give up? One way to manage this transition is to “dip your toe” into returning to work by picking up just a few hours - or shifts - each week, to see how you feel.
Others, however, may miss the camaraderie, routine and sense of purpose from a career and so wish to re-enter the workforce full-time. Here, be mindful that everything may not be the same as before. Your energy levels, your colleagues and the job/industry itself may have changed significantly since you left. A good idea to prepare for this possibility is to reach out to trusted people in your old network (who are still working) before taking the plunge. If they know you well, they may be able to advise on whether returning to the job may fit your needs.
Make financial preparations
In July 2022, around 1 in 3 people aged 50 to 70 years old stated they were considering going back to work - primarily to help cope financially with the rising cost of living. For some, this may be necessary (speak with a financial planner first to be sure).
Others may do so to boost their income to make life more comfortable. Regardless, be careful to not ignore key rules about your pension(s) that might may affect the wisdom of your decision.
In particular, be mindful of the Money Purchase Annual Allowance (MPAA) - a little-known set of rules which often catches people off-guard. This stipulates that your annual allowance (i.e. limit on making pension contributions which receive tax relief) must be lowered to £4,000 per year. If you are planning on returning to work to boost your pension pot, therefore, you may find that the rules hinder you if you have already started taking pension benefits.
Those who have not built up a full National Insurance record (35 “qualifying years”) may find benefit in finding “gaps” in their record and completing them - via voluntary contributions - to get a better State Pension deal. In 2022-23, the full new State Pension can bestow £185.15 per week (£9,627.80 per year) and a full voluntary NI contribution for a year usually costs up to £824. Given that this could add £275 per year to a pre-tax State Pension income, it could be worth it for many people. Additionally, if your spouse or partner does not yet have a full State Pension, then by one (or both) of you returning to work this could be built up using voluntary contributions too (to boost your overall household State Pension income).
Contact your financial planner to discuss your retirement options.
Pension and investment fraud on social media - beware of the scammers
Pension and investment fraud on social media - beware of the scammers
Few experiences are as distressing as financial fraud. According to one study, being a victim of fraud can lead to trauma manifesting in “Anger, rage and pain, hopelessness and depression, anxiety, fear, nightmares, shock, numbing, emotional despair, and devastation”. Sadly, fraud is still prevalent in the UK, with £609.8m stolen in the first half of 2022 through bank fraud and scams. One worrying trend is the rise of pension and investment fraud on social media such as Instagram, Facebook and Tiktok. In this article, we explore why such scams are on the rise, the common forms they can take and ideas to protect yourself.
The rise of pension & investment scams
In July 2022, two fraudsters were jailed for six years after conning more than 250 pension holders out of £20m. The court case revealed a sophisticated and well-planned operation, leading to a loss of between £10,000 and £200,000 per victim. This took place alongside an apparent rise in pension scams in the last year. Research by Lottie shows that in the first quarter of 2022 alone, there was a 75% rise in Google searches for “scam help”. Searches for “fraud support” had risen by 50% whilst searches for “investment scam” were also up by 22%. Action Fraud also received 107 pension fraud reports in the first three months of 2021, up by 45% in the same period of 2020.
Social media has been a significant source of these crimes, with younger people especially at risk. The Economic Crime Unit at Northamptonshire Police recently published research showing that 39% of investment fraud victims in the UK are aged 20 to 39 years old. In many cases, the victims saw an “influencer” on social media promoting a particular investment which turned out to be fraudulent. Sometimes, celebrities are pictured on scam adverts providing endorsements without their knowledge - as the case of Martin Lewis from MoneySavingExpert illustrates.
One reason for this could be that scammers have discovered that social media platforms are difficult to regulate.
The sheer volume of content getting uploaded to Facebook, Instagram and other platforms is immense and a clever scammer can work around filters with relative ease to set up a fraudulent advertising campaign (for a limited time). The Online Safety Bill currently going through parliament will hopefully make this more difficult - for instance, by requiring that influencers declare payment for promoting products. However, it is unlikely that legislation will stamp out the problem entirely.
Common scams to watch out for
It is impossible to list every investment and pension scam, but it can help to be aware of the popular ones in 2022. Pyramid schemes are still prominent and difficult to spot, often involving a “rep” (e.g. a friend or even a family member) who eventually asks for an up-front investment for a “starter pack” of products. The victim is then promised a commission for products sold and a larger return if they manage to recruit others to the scheme.
At some point, the “pool” of reps will dry up and the people at the top of the scheme walk away - together with your initial “investment”.
Pump and dump is another scam to watch out for. Here, a scammer persuades investors to buy a “low-priced” stock (perhaps not a legitimate business), causing it to rise in price. When the price goes high enough, the scammer then “dumps” their own shares before the price crashes. A third type of scam is the offshore scam, which entices investors to invest in an overseas investment “opportunity” in return for large profits (e.g. due to promises of low/no tax). When money is sent over by investors, it simply goes into the fraudsters’ accounts. This type of scam can be especially painful as the government may then require that you pay tax - or a penalty - for participating in tax avoidance. Finally, a fourth popular scam is pension fraud. Here, the members of an existing scheme may be persuaded to move their life savings into another, fake scheme which apparently offers high returns for low risk.
The money is then simply stolen or invested into strange, high-risk investments such as forestry, parking and storage units.
Ideas to protect yourself online
A first good rule of thumb to follow is never to be rushed into making an investment decision. Fraudsters will often apply pressure on potential victims (e.g. stating that the opportunity is time-limited) to try and get you to part with your money quickly. A legitimate financial planner, however, will always give you the time and information you need. A second idea is to consult the Financial Conduct Authority’s (FCA) register for companies authorised to provide investment opportunities and/or advice. The FCA also provide information about the different types of scams and how to avoid them. If a company is regulated, then you are covered by the Financial Ombudsman Service (FOS) if things go wrong.
Following good internet safety practices is also wise. Avoid clicking on links in suspicious emails, texts or social media messages (which could take you to a “front” website posing as a legitimate business).
Be careful about connecting to public WiFi networks; or, if you do, consider using a trusted virtual private network (VPN) service to encrypt your connection. Look out for the green “padlock” symbol (or “HTTPS” prefix) before the website address in your browser to help ensure that you are on a secure website. Regarding your pension, keep an ear out for “red flags” like promises of pension liberation (i.e. helping you access your pension before age 55), complex investment structures and high-pressure sales tactics - like sending a courier with documents to your door (hoping you will sign them).
To discuss your retirement options, get in touch with your Punter Southall Aspire adviser.
4 ways you can save money on a capital gains tax bill
4 ways you can save money on a capital gains tax bill
With the UK facing a £40bn “fiscal hole” in the public finances, the government is planning to lower a range of tax-free allowances to help ease pressure on the public purse. In particular, capital gains tax (CGT) is set for some important changes in the coming tax years. This makes it more likely that an investor may be taxed on the profits of asset “disposals” (e.g. selling shares which have risen in value). Below, our team at PS Aspire explains how capital gains tax works and offers four ideas to help avoid an unnecessary tax bill on your profits.
A brief recap of capital gains tax
When you sell an asset (e.g. shares in a general investment account), the amount you receive from a sale is not taxed - but the gain might be. For instance, if you bought shares for £5,000 but later “dispose” of them for £7,000, the £2,000 profit may be subject to CGT (but not the full £7,000). The rates are currently 10% or 20% for individuals, or 18% and 28% tax rates for residential property and carried interest ("carried interest" - is a share of a private equity or hedge fund's profits that is paid to the fund's managers). Below, we offer four ideas to help investors mitigate a needless CGT liability.
#1 Use your CGT allowance
In 2022-23, a UK resident is entitled to earn up to £12,300 in capital gains (outside of an ISA) without facing CGT. Many people do not make maximum use of this allowance to protect their profits. One strategy is to “spread out” your asset disposals across two tax years if you risk exceeding your CGT allowance within a single year. However, you need to be confident that the assets in question will not fall significantly in value while waiting to sell them. It is also important to recognise that this Annual Exempt Amount is set to fall to £6,000 in April 2023 and, later, to £3,000 in 2024. Therefore, this tactic may not be as effective as in previous tax years.
Bear in mind that you cannot “carry forward” unused CGT allowance into the following tax years. If you do not use your £12,300 allowance in 2022-23, for instance, then it will be lost in 2023-24. The CGT allowance can often be useful for assets that cannot be held inside of an ISA, such as buy to let investments and personal possessions worth over £6,000.
#2 Use your ISA
On top of your yearly CGT allowance, each UK tax resident (age 16+, or 18+ for a stocks and shares ISA) can place up to £20,000 inside of ISAs and release capital gains without tax. However, most British people do not use their ISA allowance. Only 48% of people with over £50,000 of investable assets maximised their allowance in 2020-21, whilst for those with £50,000 and £100,000 the figure was 33%.
One reason for this may be that people do not plan ahead for the tax year. Committing a lump sum of £20,000 to an ISA before the 5 April deadline is often not feasible, but committing about £1,666 per month might be more within reach. Even moving an existing portfolio (in a general investment account, or GIA) to an ISA can be achieved using the “bed and ISA” approach.
This involves selling investments in a portfolio and then immediately buying them back in an ISA. It can be an option for saving capital gains tax over multiple tax years. However, consider speaking with a financial adviser first. Some investments in your GIA may be worth selling, for instance, but not re-purchasing in an ISA (e.g. shares that have run out of “growth potential” or which are resting on poor fundamentals). Instead, the capital could be used to buy other assets within an ISA that better reflect your goals and strategy.*
#3 Use your spouse or civil partner
If you give or sell assets to a spouse or civil partner, then no capital gains tax (CGT) is due, unless certain exceptions are met (e.g. you separated and did not live together at all in that tax year). This can be useful for reducing the overall CGT bill within a household, since each person has their own CGT allowance and can organise their assets accordingly. For instance, if a wife has used her full £12,300 allowance in 2022-23 but her husband has not, then she could give the other shares she wanted to sell to him. He can then sell them for a profit within his own CGT allowance. In effect, this can allow a married couple or civil partnership to expand their collective CGT allowance to £24,600 per year and their joint ISA allowance to £40,000.
#4 Consider tax-efficient investments
Certain schemes exist in the UK which allow investors to save on CGT, also encouraging investment into the economy. For instance, the Enterprise Investment Scheme (EIS) allows investors to generate tax-free capital gains on EIS shares which have been held for at least three years. In addition, EIS offers “deferral relief” - i.e. deferring the tax liability of a capital gain (from a non-EIS investment) by investing this gain into an EIS-qualifying company or fund. Investors can use deferral relief for previous capital gains made over the past 36 months or for expected gains over the next 12 months.
For instance, suppose you sell a buy to let property for a £50,000 profit and use your £12,300 CGT allowance towards it in 2022-23. This would leave £37,700 potentially subject to 28% CGT if you are a Higher Rate taxpayer (producing a £7,540 tax bill). However, suppose you invested £37,700 straight into an EIS fund and did not dispose of the shares until 3 years later. In this case, no CGT will be due on the capital.
However, bear in mind that EIS is targeted at early-stage companies that are more likely to fail or collapse. The growth potential can be significant, but EIS investments are classified as high risk investments by the FCA and are not suitable for all investors due to the risk involved. Speak with a financial planner if you are interested in tax-efficient investments like these to explore how they might integrate into your wider portfolio.*
*As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
If you would like to discuss capital gains tax, contact your PS Aspire adviser.