Founder & Financial Planner
Figures suggest that an increasing number of people plan to work past the traditional retirement age. There are a variety of reasons for doing so and it also could help secure your long-term finances. If it’s something you’re thinking about, there are some things you need to consider.
According to Legal & General research, the number of over-50s in work has increased by 36% in the last year. The rise has been driven by an increase in the number of people in their 60s living and working for longer. It’s not a trend that’s expected to go away either; by 2030, it’s estimated that almost half (47%) of over-50s will be part of the workforce.
Even with the State Pension Age rising, more people are working beyond this point. The report suggests 8% of people over the age of 66, the State Pension Age in 2021, are in work. By 2030, this is expected to rise to 11%. That would be the equivalent of 948,000 people working while being above the State Pension Age.
The research found that finances are playing a role. Some older workers want to boost their pensions and other savings to secure their desired retirement income. The gender pay gap and changes to women’s State Pension mean more women are working for longer too. For others, working longer can provide purpose and a routine that they want to retain. Whatever your reason, if you choose to work past the State Pension Age, there are some things you should consider.
While you may not be ready to retire yet, setting out a long-term plan is still important. When do you want to retire, and what retirement income will you need? Your plans don’t have to be set in stone, but having an idea of when you want to retire and the lifestyle you want can ensure you stay on the right track.
You don’t have to give up work to be able to access your pension. Usually, you can access your pension from the age of 55, rising to 57 in 2028. This includes often being able to take a 25% tax-free lump sum. You can earn a salary and withdraw an income from your pension if you wish to. However, keep in mind that it could affect your retirement income in the future. It could also increase your Income Tax liability, and potentially push you into a higher tax band. Make sure you’re aware of the impact before you make a withdrawal.
If you’re hoping to boost your retirement income, you may still want to contribute to your pension. This can help your money go further and provide you with a larger pot to draw from when you do decide to give up work. Usually, your Annual Allowance, the amount you can place into a pension each tax year while benefiting from tax relief, is £40,000 or your annual income, whichever is lower. If you’re a high earner, your Annual Allowance may be lower. However, if you start taking an income from your pension, you may trigger the Money Purchase Annual Allowance (MPAA), which will reduce the amount you can tax-efficiently save to £4,000. It’s important to be aware of your allowance so you don’t exceed the threshold.
If you’re working past the State Pension Age, you may want to defer claiming your State Pension. For every nine weeks you defer, your State Pension will increase by 1%. This works out at just under 5.8% if you deferred for an entire year. As well as a higher State Pension when you do claim it, deferring your State Pension if you’re still working can reduce your Income Tax liability.
Pensioners have far more freedom today to create the lifestyle they want. You may not be ready to give up work completely, but do you want to strike a better work-life balance? You may want to reduce your working hours and supplement the lower salary by taking an income from your pension, for example. If you’re not sure what your options are, we’re here to help you.
In the past, people working beyond the State Pension Age have been exempt from paying National Insurance contributions (NICs). However, a hike announced by the government will now affect this age group.
From April 2022, NICs will increase by 1.25 percentage points. From 2023, this additional tax will become a separate “Health and Social Care Levy”. The levy will be paid on all income earned, meaning those working beyond State Pension Age will also be charged. While the charge can seem relatively small, it means those working past the traditional retirement age will see their pay affected by National Insurance for the first time. It could mean your take-home pay is lower than expected, so it’s something you should keep in mind when planning your finances.
If you’d like to discuss working past retirement age, from whether to access your pension to how to create the work-life balance that’s right for you, please get in touch.
Please note: This blog 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. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.
