Nearly one in ten (9%) retirees aged over 55 have come out of retirement or are actively looking for work, with higher living costs the main reason people are compelled to ‘unretire’.
More than a quarter of those questioned (27%) by Standard Life said that their pension didn’t provide them with enough income to live off, whilst 34% said steeper bills meant they had to return to work.
Mike Ambery, Retirement Savings Director at Standard Life, which is part of Phoenix Group, said: “Money isn’t the only reason people return to work after retiring – but it certainly seems to be a big factor. Recent retirees couldn’t have foreseen the cost-of-living issues that have squeezed their retirement incomes, and many are now being forced to rethink their plans and return to work to supplement their income.”
Here, we look at some of the things you’ll need to consider if you’ve retired but are planning to return to work, and what it means for your pension.
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,500 reviews on VouchedFor, the review site for financial advisors.
Can I go back to work if I’m already taking my pension?
If you’ve already started taking an income from your pension you’re free to go back to work if you need to. Whether you decide to continue receiving money from your retirement savings while you’re working will depend on how you’ve chosen to take an income.
For example, if you’ve opted to use drawdown to provide you with an income, this means your retirement savings remain invested and you can take money out as and when you need it. That means if you’ve decided to return to work and don’t need income from your pension whilst you’re getting a salary, you can pause or stop income payments from drawdown at any time. Learn more about how drawdown works in our guide What is pension drawdown and how does it work?
If, however, you’ve used some or all of your pension to buy an annuity, or a guaranteed income for life, you won’t be able to pause payments from this whilst you’re working. This is because once you’ve set up an annuity, you can’t change, sell or transfer it. Learn more about how annuities work in our guide Annuities explained. You can find out more about work and your pension in our article Can I take my pension and still work?
It may be that you are also receiving your State Pension when you decide to return to work. If you want to pause your payments, you can do this once, and you’ll have to contact the Pension Service to request this. Bear in mind that once you re-start your State Pension payments, you cannot pause them a second time.
If you’ve decided to unretire but haven’t yet reached State Pension age, you can opt to defer your State Pension until you stop working for good. The main benefit of doing this is that it means you’ll receive a greater amount when you do eventually start claiming it. Find out more in our articles How the State Pension works and Eight reasons you might decide to defer your pension.
Retiring gradually
Many retirees prefer to stop work gradually rather than have a ‘hard-stop’ retirement, allowing themselves more time to adjust to life outside work, both socially and financially.
Phasing your retirement could leave you in a much stronger financial position when you eventually stop working for good.
For example, according to calculations by Standard Life, someone that began working on a salary of £25,000 per year and paid the minimum monthly auto-enrolment contributions (5% employee, 3% employer) from the age of 22, could have a total retirement fund of £193,000 by the age of 66. This is in real terms, adjusting for 2% inflation a year, and assumes 3.5% salary growth, 5% investment growth per year, and a 0.75% annual management charge.
However, someone that worked three days a week from the age of 66 to 70 could add £27,000 to their pension pot, whilst orking just one day a week for a few years after reaching retirement age could add as much as £21,000 to a retirement fund. This is comprised of £18,000 from fund growth due to delaying starting to access pension savings from 66 to 70, and £3,000 due to the additional contributions of working one day a week. These figures are again adjusted for inflation.
Mr Ambery said: “In future it’s likely that more people will shun the traditional cliff edge retirement and instead gradually reduce working hours or take on part time work. The good news is that in addition to boosting their pension savings, they can also begin to experience the day-to-day reality of life outside the workplace.”
Returning to work
Making the decision to return to work after you’ve retired can feel extremely daunting, especially with age discrimination remaining an issue.
Catherine Foot, Director of Phoenix Insights adds: “Returning to work can be hugely beneficial for over-50s when it comes to earning, saving and the sense of purpose it brings. While some have enough finances to retire early out of choice, many fall out of work in their 50s and 60s due to reasons such as caring responsibilities or ill health and plan to return as soon as they are able.
“However, the over-50s face significant barriers to re-entry. This is primarily due to a lack of opportunities and insufficient provision of good quality flexible work that people working later in life desire. Being out of work before state pension age is a major driver of pre-retirement poverty, so it’s critical for the government and employers to better support this group to remain in employment. Providing access to flexible work is one of the most important factors to enabling this.”
We have several articles that might help you if you’re looking to return to work. Remember that you don’t necessarily have to go back to your old role – for example, you might view your unretirement as a good opportunity to explore new avenues. You can search for age-diverse employers in your area here and find out more about the pros and cons of working for longer in our article Is going back to work after retirement the right move for me?
If you’re considering retiring gradually, then you’ll find plenty of tips in our guide Is phased retirement a good idea?
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,500 reviews on VouchedFor, the review site for financial advisors.
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