There’s a chance you may see retirement as the ultimate reward after a lifetime of hard work. It’s your time to work your way down your bucket list or even spend more time with your loved ones.
Despite this, many people in the UK are returning to work after they’ve retired.
Research from Legal & General reveals that nearly 3 million people in the UK have decided to do exactly that, with 37% of those stating they did so to manage rising costs.
This trend – which is known as “unretiring” – involves returning to the workforce in some capacity, whether in the same role, on a part-time basis, or even as a consultant.
While unretiring can offer several benefits, it also comes with some potential drawbacks, so continue reading to discover whether it would be the right choice for you.
Rising living costs might be contributing to the rise of retirees returning to work
One of the primary reasons people are returning to work after previously being retired is due to financial pressures caused by the cost of living crisis.
For instance, the BBC reports that couples might need around £59,000 a year for a comfortable retirement.
However, if you had saved this amount in 2020, the Bank of England’s inflation calculator shows that you would need £72,615.86 by July 2024 to maintain the same standard of living. This is a significant increase that could lead to a shortfall in your retirement savings.
Moreover, the UK has only recently come off the back of a period of high inflation, peaking at 11.1% in October 2022.
High levels of inflation mean the cost of living has risen year on year, which could reduce your retirement savings’ purchasing power over time – especially if interest or returns you generate are below the rate of inflation. This can make it challenging to maintain your desired lifestyle without a source of additional income.
This is where unretiring comes in – the income from returning to work can provide you with additional funds that can help you manage rising costs without the need to excessively draw from your pension or savings.
By supplementing your income, you might be able to stretch your pension savings further, potentially allowing you to reduce how much you draw from or even delay accessing your pension so you can use it to achieve your goals, or perhaps in your later years if you have greater care needs.
What’s more, returning to work could enable you to make additional pension contributions from your newfound income, boosting the overall value of your pot.
It’s vital to be aware of the Money Purchase Annual Allowance
While unretiring can offer the potential for financial gain, it’s vital to be mindful of the tax implications, particularly if you’ve already started drawing from your pension.
Typically, the Annual Allowance allows you to benefit from tax relief on pension contributions, meaning that for every £100 you contribute, this would only “cost”:
- £80 for basic-rate taxpayers
- £60 for higher-rate taxpayers
- £55 for additional-rate taxpayers.
However, it’s vital to note that you could inadvertently trigger the Money Purchase Annual Allowance (MPAA).
Normally, your pension Annual Allowance in 2024/25 is £60,000 or 100% of your earnings, whichever is lower. Though, if you’ve already accessed your pension, this may be restricted to £10,000 due to the MPAA.
Since this is much lower than the standard Annual Allowance, you might not be able to accrue as much in your pension if you return to the workplace.
It’s crucial to keep this in mind when you’re making a decision about unretiring, as it may affect how much you can accumulate in your fund.
Remember that if you’re considering unretiring for financial reasons, you might want to consult with your planner first.
Unretiring could be beneficial for your mental wellbeing
Unretiring isn’t just about bolstering your wealth; it can also have notable benefits for your mental wellbeing.
After initially retiring, you might look forward to filling your days with activities you previously didn’t have time for during your working life. That might be travelling, spending time with your family, or pursuing new hobbies.
Though, you might find that the reality of retirement can fall short of your expectations. Without the structure and routine of work, you may feel as though you’ve lost purpose or even experience isolation. This is particularly true if your career was a significant part of your identity.
This is more common than you might initially think, as research from Age UK found that 1.4 million older people in the UK are often lonely, translating into poor physical and mental health.
Returning to work, even in a part-time capacity, could offer a renewed sense of purpose, all while offering a way to remain socially connected with your colleagues.
This can boost your self-esteem and provide the daily structure that you miss, both of which are vital for maintaining your mental health.
Returning to work could affect your goals and aspirations for retirement
Even though unretiring can benefit your mental wellbeing, it’s still essential to remember why you retired in the first place.
When you created your financial plan, you likely set goals for how you wanted to spend your retirement years. Returning to work has the potential to disrupt these plans, so it’s important to carefully consider how it might affect your goals and aspirations.
Above all, it’s vital to find a work-life balance that works for you. If you believe returning to work would keep you away from your family or means you won’t be able to travel the world, you might decide to work part-time or take on a consultancy role that offers more flexibility.
Get in touch
We could help you explore whether there are other ways to achieve your goals without sacrificing your retirement lifestyle by evaluating your current situation, identifying any gaps, and recommending strategies to help you achieve the retirement you want.
If you’re looking for a financial planner in Bristol, email us at helpme@aspirellp.co.uk or call 0117 9303510 to find out more.
Please note
This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
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 performance.
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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