“Unretiring”: What your clients might want to consider before returning to work

Have you noticed that a growing number of your clients are talking about returning to work after they’ve retired?

The latest Office for National Statistics data shows that the number of people aged 65 and over in employment between April and June 2022 hit a record high of 1.5 million, an increase of 173,000 on the previous quarter.

However, “unretirement” – rejoining the workforce – may not be the right choice for everyone.

Read on to discover four important factors your clients might want to consider before going back to work.

1. Returning to work could disrupt your client’s work-life balance

Most people have a reason for choosing to retire, be that to travel or spend more time with their children or grandchildren.

Unretiring could disrupt these plans and upset the work-life balance your client has come to enjoy in retirement.

Additionally, if your client has a financial plan, it’s probably built around their life goals, which may need adjusting if they rejoin the workforce.

So, while returning to work may offer benefits, your client might want to think about whether they’ll still be able to fulfil their retirement plans and dreams.

Indeed, there may be a happy medium to strike. Instead of returning to full-time work, your client could explore semi-retirement or part-time working options that allow them to reap the benefits of returning to work while also continuing to enjoy more free time than they had before they retired.

2. Your client could grow their pension pot further

Returning to work might give your client the opportunity to resume paying into their pension. This could allow them to benefit from tax relief and potentially employer contributions – if they have a workplace pension – on top of their own contributions.

Furthermore, the abolition of the pension Lifetime Allowance (LTA) charge could enable your client to grow their pension pot further.

Previously, the LTA limited the total amount an individual could accumulate in pension benefits without incurring an additional tax charge. For most people, the limit was £1,073,100. However, the LTA charge was removed on 6 April 2023, and the LTA will be completely abolished from 6 April 2024.

So, if your client stopped making contributions because they were near the LTA, returning to work could allow them to resume payments and top up their pension pot.

However, your client’s tax-efficient contributions will be limited to their Annual Allowance, which is £60,000 or 100% of their earnings (2023/24) – whichever is lower. Their Annual Allowance may be lower if their income exceeds certain thresholds, or they have already flexibly accessed their pension – more about this below.

Read more: The Lifetime Allowance: why the latest news might be really good for your clients

3. Unretiring may result in a lower pension Annual Allowance

If your client is considering returning to work to boost their retirement savings, the removal of the LTA might be welcome news.

However, if they’ve already started drawing flexibly from their pension, your client may be subject to the Money Purchase Annual Allowance (MPAA). This could reduce the amount they can contribute to their pension each year without an additional tax charge.

The government increased the MPAA from £4,000 to £10,000 on 6 April 2023 in a bid to encourage people to return to work. But this is still significantly less than the Annual Allowance.

So, your client may want to give careful thought to how unretiring and potentially triggering the MPAA when they restart contributions might affect their long-term financial plans.

4. Your client could defer their pensions, potentially resulting in a higher retirement income

If your client unretires and starts earning an income again, they might want to consider deferring or stopping the income from their pensions until they need them.

This could potentially result in a higher income when they access their pension as their funds may have continued growing and their savings are likely to be stretched over fewer years.

However, it may be a good idea for your client to check with their provider about the rules for stopping or delaying withdrawals. If they have a flexible or “drawdown” income, they may be able to make such changes, whereas this might not be possible if an annuity provides their income.

Your client might also choose to defer their State Pension if they have other sources of income to rely on. This could result in higher weekly payments or a lump sum when your client decides to claim it.

For example, if they reached State Pension Age on or after 6 April 2016, their State Pension will increase by the equivalent of 1% for every nine weeks they defer (provided they defer for at least nine weeks).

If your client wishes to delay their State Pension, they don’t need to do anything – it will automatically defer until they claim it.

Get in touch

A financial planner can help your client understand how unretiring could affect their long-term financial plans.

To find out more, please ask your client to email us at mail@delaunaywealth.com or call 0345 505 3500.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients 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 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.

Workplace pensions are regulated by The Pension Regulator.