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.
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).
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.
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.
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.