Returning to work after having previously retired is a big decision to make in many respects. Aside from lifestyle adjustments, ‘unretiring’ can have consequences for your finances too. If you’re thinking of going back to work, it’s important to know the full picture up front.
You can read what unretiring may mean for you financially below or read our lifestyle and wellbeing tips here.
If you haven’t yet reached state pension age:
You must currently be 66 years or older to claim the state pension. However, that is increasing to age 67 from April 2028.
If you haven’t reached state pension age and don’t need the extra income, you can choose to defer claiming, but keep in mind it might affect other benefits you may be entitled to.
If you choose to defer by a year, for example, you’ll add around 5.8% to the amount you are due to receive in future.
If you earn above £10,000 your new employer should automatically enrol you into their workplace pension scheme and pay at least 3% of your qualifying earnings to the scheme.
If you have reached state pension age and have started claiming your state pension:
If you’ve reached your state pension age and have started claiming, then this income will count towards your income for the year for tax purposes.
You can choose to stop receiving your state pension when it is in payment, but you can only do this once. You can restart at any point and will receive a higher weekly pension depending on the length of the period you’ve stopped.
If you are above state pension age your new employer won’t automatically enrol you into a workplace pension scheme, but you will be given the option of joining.
If you have started generating an income from a private or personal pension:
If you have a Defined Benefit or final-salary pension, provided by your old employer, you won’t be able to turn off the income being received.
For other types of workplace or personal pensions, where you’ve transferred the money into income drawdown or a self-invested pension, you have total control on when and how you take money out of your pot.
If you are using income drawdown you may want to consider the amount of income you are withdrawing, and potentially reduce this especially if your total income between salary and pension will take you into a higher tax bracket.
If you have chosen an annuity for your retirement plans:
With an annuity, an insurance company will guarantee to pay you a lifetime income in exchange for your pension. These products are far less flexible than drawdown arrangements and the income will continue whether you want it or not.
However, if you have purchased an annuity within an income drawdown plan using a retirement account, you have the extra flexibility to choose to reduce or stop your income. This income can remain invested in the account until you choose to restart or withdraw it at a later date. This can help manage the income tax you pay.
Whether you’re approaching retirement or have already retired, be aware of the Money Purchase Annual Allowance (MPAA):
If you’ve flexibly accessed your pension, meaning you’ve withdrawn £1 more than your 25% tax-free cash allowance through contracts like drawdown, then you’ll be restricted in the amount you and your employer can pay into your pension. This is currently £4,000 a year, any contributions over that won’t attract tax relief, and you’ll lose the ability to carry forward unused allowances from the previous three tax years.
£4,000 may sound a lot but when you start a new job and you are under state pension age you’ll automatically re-join the workplace pension scheme, and any employer contribution, alongside your savings and tax relief, will count towards that annual limit. You can read more about the MPAA here.