It all used to be so simple. When reaching retirement age the options were limited and there were few decisions to be made. Most people knew what income they could expect from their pensions month on month. They could cut their cloth accordingly and live out the rest of their days.
Changes to state pension legislation and the pension reforms of early 2015 changed all that. There are now more options (and more complexity). Drawing a pension while still working beyond scheduled retirement date is now a valid option for many.
Why Continue Working Beyond Retirement Age?
Working past your scheduled retirement date is the last thing you may wish to consider. Or, you may be attracted by the flexibility that an additional income offers. You may wish to pay for that extra special holiday you have always promised yourself or sleep better knowing you have extra flexibility and security.
Forgetting financial concerns for a moment a part time job can allow you to transition from working life to full-time retirement. The traditional sudden end to working full time can cause a number of social, relationship and even mental health issues. The positive impact of the social side of a working environment should not be underestimated.
The Retirement Age Rules
The default retirement age (65) was abolished by the Employment Equality (Repeal of Retirement Age Provisions) Regulations 2011. Workers cannot be forced to retire on the grounds of age alone and employers can no longer issue the minimum six-month notification for compulsory retirement except in specific occupations.
Your state pension age will vary depending on your year of birth. It may be anywhere between 65 and 68 years old and it could increase further in the future. It is important to remember state pension age is simply the age you are entitled to a state pension. You do not have to take your state pension (see below) and there is no legal requirement to retire at this age.
If you do defer the date at which you take your state pension it will increase your entitlement each year you delay by approximately 10 percent (although there are risks with this approach). An indication of state pension entitlement can be found by entering a few basic details into the Government calculator.
Continuing To Work Delivers More Options
Hopefully, working for longer will be a choice rather than a necessity. You do not want to be forced into a position where you need to continue to work.
It is important to calculate your potential final pension fund value. You should compare this with your estimated needs in retirement. If there is a shortfall you will need to take action as early as possible.
Until the pension reforms (2015) most individuals, when nearing retirement, opted for an annuity. An annuity is a guaranteed income for life and is still remains an option at retirement. You can receive an annuity income and continue to work, some people find this useful to ease into retirement saving the surplus income for when they eventually fully retire.
The pension reforms delivered the flexi pension drawdown option. As the name suggests flexi drawdown allows you to take what you require from a pension fund when you like. Drawdown has several other potential benefits (and risks) discussed elsewhere on our blog.
Drawdown gives you the flexibility of matching your income needs as you ease into retirement. It is becoming increasingly common for people to reduce the number of days that they work and “top-up” their income using drawdown, easing themselves into retirement gradually.
Alternatively they can maximise their income between their chosen retirement date and state retirement. Although this option comes with additional risks and requires close monitoring so that you do not take too much income and run out of money in retirement. A pension fund in drawdown is not guaranteed to last a lifetime and continuing in work earning additional income can add an extra level of security.
Each of the potential options discussed above has tax implications that you should consider carefully. We will look at the tax implications in a future post.
If you would like to chat through the implications of working for longer then give us a call. Or, if you prefer, use the Chat facility to ask any questions you may have. If you would like a call back then simply complete the form below.
This blog is intended to provide a general review of certain topics and its purpose is to inform but NOT to recommend or support any specific investment or course of action. The past is not a guide to future performance. The value of investments can go down as well as up and you may not get back the full amount you invested. Tax and financial regulations can change. Any figures quoted above are at the date of publication.