2 advantages of the growing trend of “unretirement” (and 2 pitfalls to avoid)

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Recent data from the Office for National Statistics (ONS) reveals that there has been a sharp rise in over-50s thinking about returning to the workplace.

The ONS questioned people aged between 50 and 65 who had left their job since the start of the Covid pandemic, and who would consider returning in the future.

Professional Adviser reports that 72% of adults aged 50 to 59 were thinking about heading back into the workplace, up from 58% in February 2022.

If you are considering “unretirement” and returning to work, read on to find out what you need to know.

Two-thirds of over-50s looking to “unretire” for financial reasons

When asked why they were considering unretirement, it won’t surprise you to learn that “money” was the most common reason. With the costs of living rising sharply, many over-50s simply want the security of a boost to their income.

While 67% of respondents cited this as the reason they were considering going back to work, it’s interesting to note that many people had non-financial reasons for the choice.

Almost half of those quizzed (46%) said they wanted to work for social company or a job they would enjoy, while 42% said they thought it would improve their mental health.

Pre-retirees also considering staying in work for longer

As well as people who have already retired heading back to work, a Legal & General study has found that many people yet to retire are also considering staying in the workforce for longer.

The research found 2.5 million people were planning to delay their retirement, with 1.7 million expecting to keep working indefinitely because of rising living costs.

On average, those aged 55 or more still in work plan to put off their retirement by almost three years. The main reasons for this were:

  • Not being able to afford the loss in income (64%)
  • Enjoying the job (26%)
  • Not feeling “old enough” to retire (25%).

In alignment with those retirees thinking of heading back to work, a fifth of over-55s in employment also said they would worry they would be “bored” if they retire.

2 positive reasons to “unretire”

  1. You can boost your income

If you enjoy your work, feel fit and healthy, and are happy to continue, delaying your retirement can have positive financial benefits.

As well as continuing to earn your employed income, staying in work can boost your pension in two ways:

  • You can continue to make contributions to boost the value of your fund. Adding in employer contributions and tax relief could provide a real lift to the size of your eventual pot.
  • Staying in work means you delay drawing from your pension. Consequently, your fund will likely have to last for less time, potentially making your lifestyle more comfortable.
  1. It’s good for your mental health

If you don’t plan emotionally for your retirement, it can leave a hole in your life. The lack of structure and purpose can negatively affect some retirees, and the lack of social contact can also be difficult to adjust to.

Remaining in work can be good for your wellbeing, providing valuable mental and social stimulation.

2 things to consider if you’re planning to “unretire”

While there can be sound reasons to head back into the world of employment, there are a couple of issues to consider.

  1. You’ll have less time to achieve your goals

At your retirement age, you will likely have worked hard during your life and saved diligently to enjoy the retirement you want. So, remaining in work could mean you’ll have less time to tick all your adventures off your bucket list.

It goes without saying that you may have much less free time to travel, spend with your family, or simply to kick back and relax.

Do you want to lose the free time you’ve found in retirement? Do the benefits of finding a job outweigh those of enjoying the retirement you’ve worked so hard for? If the answer is no, you may want to rethink your choices.

  1. If you return to work, your tax-efficient pension contributions will be limited

One of the benefits of heading back to work is that you can continue to make pension contributions based on your earnings. If your employer is also paying in – added to the tax relief you receive – you could build up a nice extra sum.

However, if you have already decided to flexibly draw a pension from your fund, you will be restricted as to the amount you can contribute to your pension tax-efficiently.

A little-known rule called the “Money Purchase Annual Allowance” (MPAA) restricts the total amount you and your employer can contribute to your pension every year to just £4,000. It is something that catches out many over-55s transitioning into retirement and using their pot flexibly to supplement their income.

Taking your retirement income from other sources and leaving your pension untouched means you may be able to benefit from making pension contributions up to your Annual Allowance of £40,000 (or 100% of earnings if lower) if you decide to return to the workplace.

Get in touch

Deciding to “unretire” and head back to work can be a big decision, both financially and emotionally.

We can help to look at the financial implications of your decision and help you to move towards the retirement lifestyle you want. To find out how we can assist, please email us at enquiries@blackswanfp.co.uk or call 020 3828 8100 today.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.


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