Planning for retirement: no longer black and white

Lauren Morton | 12/11/2018



Gone are the days when most workers hung up their boots at the age of 60 or 65. Retirement is no longer becoming a fixed point in time, with growing numbers choosing to work for longer, or go part-time to supplement their retirement incomes.

According to latest figures from the Office for National Statistics (ONS), there are currently 1.26m over-65s still in work, up from 607,000 in 2006 (that’s over double the amount of people in 12 years).

On top of this and from our own research, 78% of UK adults aged 30-59 believe that they will continue to work in some form after they start to draw an income from their pension*. Here, we explore some of the reasons why so many of us are working past retirement age, and some of the pros and cons of doing so.

Reasons we're working for longer

Although in most cases the decision when to retire depends on our financial circumstances, many of us are in better health later in life and may not feel ready to stop work in our early or mid-sixties. Research by the Post Office found that two in ten workers of pensionable age (18%) have already retired and then returned to work as they seek both a routine and additional income. More than half (55%) said that they felt the traditional concept of retirement no longer exists, whilst nearly four in 10 (58%) said that our job is often linked to our status in society and is a “big determining factor” in how we’re perceived by others.

Some older people choose to stay in work because they are relied on by their dependents to provide financial support. A survey by Saga last year revealed that the ‘Bank of Gran and Grandad’ has handed over a total of £37bn to their grandchildren, with one in 10 grandparents saying this money was spent on a deposit for a house.

Benefits of working past retirement

If you’re fit and healthy and enjoy your work, and your employer is happy for you to continue, there can be plenty of benefits from working past retirement age. Not only can you top up your retirement income, but it can also help you stay active for longer.

Many people choose to set up their own business in retirement, with recent years seeing a sharp rise in the number of ‘olderpreneurs’. According to the ONS the number of self-employed people aged over 65 increased from 159,000 to 469,000 between 2001 and 2016.

Taking a phased approach to retirement, whereby you go part-time before eventually stopping work completely can also have advantages, as a slow or gradual transition into retirement can make it easier to adjust to.

What working into retirement means for your pensions

If you’ve reached state pension age, you can claim your state pension while you are working. However, if you don’t need the income from it right now, you might be able to boost the amount you’ll receive in future by delaying claiming it. For people qualifying to the state pension after April 2016, your state pension will go up by 1% for every 9 weeks that you defer taking it. This works out at just under 5.8% for every full year you put off claiming it.

You can also delay when you claim your pension from any defined contribution schemes you pay into. This means your retirement savings will have longer to grow, hopefully providing you with a bigger pension pot when you eventually stop work, although there are no guarantees.

Depending on your circumstances, you can pay up to £40,000 a year into your pension and earn tax relief on your contributions. Once you start taking money out of your pension, you can still make contributions and earn tax relief, but you’ll only be allowed to pay in up to £4,000, or 100% of your earnings, whichever is lower.

If you have a final salary or defined benefit scheme, there’s usually not much point deferring it, as your pension’s unlikely to increase in the years you aren’t claiming it. Pensions can be confusing, so if you’re not sure when to start drawing benefits from yours, or whether your current plans are working as hard as they possibly can, seek professional independent advice.

*Profile Pensions retirement research based on 1,804 respondents in June 2018

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