Research reveals that an increasing number of retirees are opting to return to the workplace – whether in full-time or part-time roles. Some may wish to address funding gaps in their retirement income, due to fears around their financial longevity. But many older people return to the workplace due to lucrative consultancy offers.
Consultancy work is often attractive, due to its flexibility (eg. part-time roles and work from home arrangements), and high renumeration. This article highlights key factors to consider if you plan to ‘un-retire’.
Funding gaps and delaying retirement
None of us have a crystal ball and there are some big unknown factors, such as how long you are going to live, whether you may need long-term care, and what type of support you may wish to provide to family members.
Cashflow planning in the years leading up to retirement can assess all aspects of your income and asset longevity, and identify any funding gaps. Many people are surprised by the asset base needed to match annual income needs in retirement if they were to live a long life – see table below.
Tip: Where a funding gap is identified some opt to return to work (part-time or full-time), or delay retirement and continue to work on a part-time or full-time basis. Early planning provides you with a clear financial forecast, helping to avoid any unwanted surprises in later life.
The value of pensions
Before pension freedoms in 2015, most retirees had to purchase inflexible annuities – a guaranteed income for life – with their pension funds. Many savers locked into an annuity once they reached pension access age, meaning no further pension contributions were possible.
Nowadays, people who return to the workplace on a consultancy basis – or continue working for longer if they’re already employed – have more flexibility. For a start, 25% of a pension can be taken tax-free from age 55, and you can continue to benefit from both personal and workplace contributions.
Tip: Typically a standard annual allowance of £60,000 can be paid into a pension in each tax year, but this could be as much as £200,000 for certain savers, if unused annual allowances from prior tax years are ‘carried forward’. This can provide a valuable boost to your retirement pot.
Preserve your full £60,000 (+) pension annual allowance
It’s really important to plan the timing of accessing pensions carefully. Many people opt to draw flexible (taxable) income from their pension from age 55, in addition to taking their 25% tax-free lump sum entitlement.
However, once you start taking taxable income from pensions you are subject to a £10,000 limit on future annual contributions. This ceiling is known as the Money Purchase Annual Allowance. If you’re continuing to work, and plan to allocate large sums into your pension in each tax year, you may wish to avoid triggering this limit.
Tip: Utilising non-pension assets, such as ISAs, first is one common solution. This allows you to top up your annual income but preserve your pension(s) – and the generous £60,000+ contribution allowance that most savers (except the highest earners) are entitled to.
Individual circumstances will differ, but early planning is a common denominator when it comes to a successful retirement plan. Find out more on 03300 564 446, or get in touch using our contact form.
This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested. Tax treatment depends on individual circumstances and may change in the future.
