Why retire when you can work?

The state retirement age was set at 65 back in 1948.

Now, with much improved working conditions and better healthcare, millions of us will be celebrating our 80th or 90thbirthdays. Not only will be living longer, but we will also be fit and active for many extra years.

At Continuum we are looking at the financial impact for those who simply don’t want to retire.

When can you retire?

The old idea of compulsory retirement at 65 is gone for good. State retirement age is simply when you will be entitled to claim your state pension and is currently 66, soon to be raised to 67, and set to go higher still in the years to come. It is possible to retire and start drawing your private pension around ten years before your state retirement age. But what about the increasing numbers of potential retirees who prefer to carry on working?

We seem to be staying in work longer and in larger numbers than ever before. Already, 8% of people over 66 are still in employment, according to research from the Centre for Economics and Business Research and Legal & General Retail Retirement, with the figure set to hit 11% by 2030.

There are many reasons for staying on. Some may relish professional challenge. Others like the companionship of their colleagues or enjoy the work they do. Some may find that there are financial reasons to keep working and that they simply cannot afford to retire.

The financial implications of working past retirement

You can begin claiming your state pension from 66 onwards and carrying on working. But you don’t have to do start claiming. You can defer and receive a higher payment when you do finally start taking it. You will be entitled to 5.8% more pension for each year that you put off taking the money.

If you turn 66 and don’t claim your pension because you are still working, deferring this year’s £179.60 weekly state pension for 12 months would entitle you to claim £190.02 in a year’s time.

What about a private pension?

You can currently begin drawing down money from a private pension, and many employers’ schemes normal minimum pension age (NMPA). This is currently 56. In line with the forthcoming increase to State Pension age, it will be raised to 57 in April 2028.

But again, leaving your savings where they are for an extended period could potentially boost their value when you do begin taking a pension income.

The longer you keep paying into the plan, the more potential there is for capital growth and also the potential for higher income. You may even be able to take a more aggressive approach with your investments if you don’t need to cash in your savings for several more years.

Planning ahead

A pension should provide peace of mind that it will provide additional income and that you will have the income you need in retirement. Living longer may require a larger pension pot to cover the extra years. Staying in work could mean a larger state pension and a bigger private pot.

On the other hand, deferral can be a gamble. Will you live long enough to receive more from your extra payments than the total pension you gave up during the deferral period?  One year’s deferral would need you to live another 17 years to be worthwhile, taking you close to an average life expectancy.

There is also the matter of tax to consider. If you carry on working and defer your pension until you actually want to stop work and move into a lower tax bracket, it could mean losing less to the taxman.

Getting some expert help

The freedom to retire early can be appealing to some, while others might relish the thought of carrying on in a job that they love for as long as possible.

Whatever appeals to you, understanding the financial impact is essential.

At Continuum we can review your current pension arrangements to help you see if your retirement plans are in reach, help find solutions if they are not – and show you the possibilities if retirement is something you would like to delay.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable retirement strategy, you should seek independent financial advice before embarking on any course of action.

The value of investments and income from them can fall as well as rise and you may get back less than you invested.


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