Return of the ‘unretired’

The word ‘unretired’ has recently entered the financial services lexicon to describe people who’ve left the workplace to retire and subsequently return to work. Research carried out last year revealed that 2.8 million over 50s in the UK have returned to work after retiring¹.

For some, it may be a simple matter of finance: They haven’t enough for a comfortable retirement. Others may miss the opportunities to socialise or perhaps the sense of purpose and fulfilment of a job well done.

Whatever the reason, the ‘unretired’ are just one part of a fluid movement towards a more progressive concept of retirement. Often, people returning to work may do so in a reduced capacity. In other words, they may work fewer hours or in a less demanding role. This raises a number of considerations:

Private pensions

• Anyone returning to the workplace who is below the State Pension age and earning above £10,000 should automatically be enrolled into a workplace pension scheme. People over State Pension age won’t automatically be enrolled but should be given the option of joining a workplace pension scheme, up to age 75.
• If benefits, other than the tax-free lump sum, income from a lifetime annuity or benefits from a defined benefit scheme, have or are being taken the MPAA will apply. This will reduce the amount that can be paid each year into a private pension to £10,000.
• Someone returning to the workplace may want to reduce or stop any income they receive from private pensions (where this is possible). This means they could take a higher income when they eventually retire outright. For example, at 65 the recommended safe withdrawal rate from drawdown is 3.7% based on a balanced portfolio and a 90% probability of the money lasting until 95. At age 70, this figure increases to 4.3%².
• Benefits received from a defined benefit scheme can’t usually be stopped nor can the income from a lifetime annuity. However, in the case of the latter, the income doesn’t have to be taken if it’s established as an asset of the drawdown fund. There are guaranteed lifetime income products on investment platforms that can be used this way.  
• Where income can’t be stopped, this could push someone into a higher tax bracket (when added to their salary or income). Any excess income could be used to fund further pension contributions which should receive tax relief (if the scope for further pension contributions isn’t limited by the application of the MPAA).

State Pension

• Even if the State Pension is already being paid it can be stopped if someone returns to the workplace. This will boost their State Pension when it is reinstated. This can only be done once and it is necessary to contact the Department for Work and Pensions. The date to stop payment cannot be a date in the past or more than four weeks into the future.
• Someone returning to work under State Pension age can choose to defer payment of their State Pension age when it becomes due. If it’s deferred, it will increase at the rate of 1% for every 9 weeks, which equates to just under 5.8% per annum.
• No action is required to defer the State Pension. The State pension isn’t automatically paid, so if it isn’t applied for, it won’t be paid. Anyone returning to the workplace after State Pension age will not pay NI contributions.

Other savings and investments

• Someone who needs to top up their income after they’ve returned to work on a lower salary could choose to take any extra income from non-pension sources where these exist. Often withdrawals will be tax-free, like ISAs for example. This way, the amount required will be less than if it’s drawn from a taxable source.

Entitlement to benefits

• Someone who receives Carer’s Allowance could find that this is affected if they return to work, as entitlement to the benefit is limited to those with weekly earnings of £196 (after tax, National Insurance and expenses). Note that Carer’s Allowance will usually cease at State Pension age.
• Anyone receiving Universal Credit, Pension Credit, or other means-tested benefits, could be impacted if they return to work. They should notify the Department for Work and Pensions or whichever department administers their benefit (such as their local authority).

Retirement is no longer a homogenous journey. Some people will retire gradually over many years; while others will retire outright, then ‘unretire’. And there will still be people who retire in a traditional sense and those who never actually fully retire. The permutations are endless. What is clear is the need for advisers to help their clients tackle the challenges they face at each turn of their retirement journey. To find out more, check out our report Reinventing retirement.