Consumer Finance: Financial Checklist For Unretirement

According to Standard Life’s 2023 Retirement Voice report, the number of retired people aged between 55 – 64 who have chosen to ‘unretire’ has almost doubled over the last year, with one in seven retirees now returning to the workplace.

For those who may be looking to rethink their retirement or have recently taken this step, what are the financial planning considerations that you need to be aware of? Here is a checklist of five key actions to consider.

1) Firstly, check your State Pension position with the Department for Work and Pensions using the Check your State Pension service, although you can still request a paper forecast if you prefer. If you have a shortfall in your National Insurance contributions, then making further contributions on returning to work will enhance your State Pension income. If you already qualify for the full State Pension then you would still need to pay either Class 1 or Class 2 contributions until you reach the current State Pension age of 66 and if you’re self-employed, you’d continue paying Class 4 contributions until the end of the tax year in which you reach 66. The self-employed would also need to send a Self-Assessment tax return for each year worked - even after reaching State Pension age.

2) It’s usually best practice to join the pension scheme of a new employer, or it may be compulsory. However, there are some added considerations in this instance. Importantly, has the Money Purchase Annual Allowance (MPAA) of £10k for the 2023/24 tax year been triggered? The MPAA is typically triggered if you take your entire pension pot as a cash lump sum or take cash lump sums from your pension pot, or put your pension pot money into a drawdown scheme and start to take a taxable income.



Seeking professional advice would be recommended to help avoid potential issues.

If you are in a defined benefit/final salary scheme and plan on returning to the same employer, which can be relevant if you worked in the public sector, check if your employer allows re-entry to the scheme if you are already taking benefits.

3) You should also review your tax position if already receiving benefits from an annuity or occupational pension. Consider if new employment will push up taxation to a higher level and whether this could make returning to work less attractive. If you are already utilising flexible drawdown, you may wish to cease your pension income or reduce it accordingly.

4) Although the pensions Lifetime Allowance (LTA) charge has been removed, the maximum tax-free amount you can take from your pension has been frozen at 25% of the standard LTA (currently £1,073,100), unless you have previously applied some form of lifetime allowance protection. This means that although you can now accrue a large pension pot without an LTA tax charge, good news for those looking to return to work to boost their retirement savings, you’ll still need to pay attention to your tax-free amount when you begin drawing from it. There are also some further complexities related to defined benefit schemes, so this is an area where professional advice should be considered as part of the overall planning.

5) Review any effect on child benefit, if applicable, as if your child is in full-time approved education or training, you can still claim for them until they are 19, or in some cases 20. If returning to employment pushes your individual income to over the £50k threshold, in addition to any other income, then you will be subject to a High Income Child Benefit Charge, regardless of which parent receives the benefit.

Whilst two-thirds of retirees stepping back into the workplace have done so due to financial reasons, according to Standard Life, 52% cited boredom, so it’s by no means just financially motivated.

Whatever the driver however, it’s important to ensure that you fully understand the financial implications of returning to work and seek professional advice if required.