The cost of living crisis together with the spring Budget, that delivered a wealth of tax changes for pension savers, is helping the trend for unretirement to gather pace.
Even before chancellor Jeremy Hunt delivered his Budget, data showed an uptick in 50- to 64-year-olds returning to the workforce.
In fact, looking at data from the Labour Force Survey, the Institute for Fiscal Studies (IFS) say that, in October to December 2022, “there was a sharp and statistically significant uptick in 50- to 64-year-olds moving out of inactivity and back into the workforce”.
If you’re thinking of joining the unretired, it’s wise to think carefully about what returning to work could mean for your wellbeing, as well as your financial situation. So here are five helpful tips to ensure a smooth return to work.
1. Check if UK pension tax changes work for you
In his spring Budget, among other changes, the chancellor announced plans to scrap the Lifetime Allowance (LTA) and increase the tax-free Annual Allowance for pension savers.
Annual Allowance increases by £20,000
From 6 April 2023, the Annual Allowance, which restricts the amount that you can save tax-efficiently in any one year, will increase from£40,000 to £60,000.
Plans to scrap the Lifetime Allowance
Plus, to encourage people to remain in work, Hunt announced the surprise decision to abolish the LTA. The government will remove the LTA tax charge from April 2023.
It’s expected that the LTA will be completely abolished in a future Finance Bill, although the Labour party have opposed this change, so time will tell.
25% tax-free cash capped at £268,275
While these are both noteworthy changes for wealthy pension investors, the maximum Pension Commencement Lump Sum (PCLS) for those without protections will be retained at the current level of £268,275, which is 25% of the current LTA of £1,073,100.
This means that while you could amass a pension pot of several million pounds, the amount you can take as a tax-free lump sum will be capped.
If you have other assets you can use for your retirement income, from a planning perspective, this is great news. The pension rule changes allow you greater scope for estate planning since pensions normally fall outside your estate for Inheritance Tax purposes.
Money Purchase Annual Allowance to increase
Another useful incentive to encourage experienced people to return to work was the chancellor’s announcement of the increase to the Money Purchase Annual Allowance (MPAA). This limits the amount of money you can save tax-efficiently into your pension after you have started drawing flexibly from your defined contribution pension savings.
From 6 April 2023, the MPAA will increase from £4,000 to £10,000.
If you have pensions in other countries, different rules will apply. Get in touch and we will help you understand whether continuing to work longer or a return to work is a good option for you, your life goals, and your financial plan
2. Returning to work could disrupt your work-life balance
If you have a financial plan, this probably hinged on several life goals you hoped to achieve in retirement. This could have been to travel the world or enjoy more time with your family and grandchildren.
Since most people have a reason they'd like to retire, returning to work could negatively affect the work-life balance you may now enjoy.
So, while there are many benefits to unretirement, think carefully about whether you will still be able to do all the things you planned for.
3. Read your contract carefully
Make sure you understand the offer your employer is making before you sign a contract. Read it in detail to ensure you know exactly what your employer is offering and what their expectations are.
For example, check if you are you able to work flexibly, and what employee benefits they offer, as well as any training, learning, or development they can provide.
Deciding to return to the workplace can come with many upsides – the social aspect, for example – but you may find it takes some time to adjust. Knowing that the package works for you could make things just that little bit easier.
4. Don’t put pressure on yourself
If you're starting (or restarting) a new job, you should expect to need time to adjust, or re-adjust to the workplace. Good employers will know this and should offer you adequate support.
If you feel overwhelmed, don't be afraid to reach out to friends or family and talk to them about your fears and struggles so they can offer you encouragement or help.
5. Talk to a financial planner
If your finances are forcing a return work, consider the income you'll need to support the lifestyle you want – both now and in the future.
The money could be from salary, State Pensions, private pensions, or other savings such as ISAs, or a combination of all of these.
A financial planner can help you to work out how long you could live and how that might affect how sustainable your desired income level may be.
Get in touch
If you are considering “unretiring” and would like to discuss the implications for your life goals and financial plan, please get in touch. Email enquiries@alexanderpeter.com or call us on +44 1689 493455.
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 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 results.
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.
All contents are based on our understanding of HMRC legislation, which is subject to change.
