- The latest ONS figures reveal that there are 1.18 million people aged 65 or over in the workplace (September-November 2017): that’s one in ten people in this age group.
- If you’re considering working in retirement, there are five secrets lurking in the small print of pension and employment rules that can make flexible retirement far more rewarding.
The full ONS Labour Market Statistics report is available here.
Sarah Coles, Personal Finance Analyst, Hargreaves Lansdown:
"1.18 million people are working past the state pension age, which is down slightly over the past year, but still means that one in ten people aged 65 or over are in work. Being able to keep working can be a lifeline for anyone who has been unable to save as much as they need, or whose plans have been knocked off course by everything from bereavement to divorce."
"In many cases, a flexible retirement strategy begins and ends with the notion that you will have to keep working as long as you can, to close the gap between what you need in retirement and what you have saved so far. However, if you’re going to make flexible retirement as profitable as possible, you need to get to know the secrets in the small print that can supercharge your strategy."
1. You can ask your employer to reduce your hours
If you reach the age of 65, give up work, and then go looking for an alternative part-time role, you can easily end up taking on far less well-paid work. A more rewarding alternative is to talk to your employer about the possibility of reducing your hours.
You actually have the right to request flexible working from your current employer. They have the right to refuse, but they have to have a valid business reason for doing so: they can’t just dismiss your request without trying to find a way to make it work.
2. You can benefit from putting off the state pension
If you are still in work at the age when you become eligible for your state pension, you may not need it immediately. If you defer it, the government will boost it by 1% for every nine weeks you delay.
There’s a trade-off between the fact you’re getting more cash every month, and the fact you’ll miss out on payments. Our calculations show that the break-even point, if you defer for a year, is 17 years into retirement. At the moment, a 65-year-old man is expected to live 19 more years and a 65-year-old woman 21 years, so it may well be worth it.
3. There may be gains to be made from putting off taking your defined benefit pension
You’d be forgiven for thinking that as soon as you had accrued the maximum pension allowable in a defined benefit pension scheme, you may as well start drawing it. However, if you put off taking an income from the pension, most schemes will usually increase the amount payable each year - typically around 8% a year. If you don’t need to start drawing this pension immediately, it makes deferral well worth considering.
4. There’s a hidden gain to be made when putting off an annuity purchase
If your income from work means you don’t need to buy an annuity immediately, it could leave you better off. Usually, as you get older, you will be offered a higher rate. When you are shopping around for an annuity, it’s also important to declare any health conditions or illnesses you face at that time, because the incidence of many conditions increases with age, and it may mean you are entitled to an enhanced annuity.
5. You can take income from a pension and pay into one at the same time
You can draw from a defined contribution pension, while you continue to work, and simultaneously contribute to another pension. Unfortunately, this will usually trigger something known as the money purchase annual allowance, which means that instead of being able to put in up to £40,000 a year (or your total earnings – whichever is lower), you can only contribute up to £4,000.
However, there is one set of circumstances where this isn’t the case. If you go into drawdown, you can withdraw up to 25% as tax free cash, and then if you put off taking a regular income, you won’t trigger your money purchase annual allowance. You can then use this 25% to generate an income, and still have an annual contribution allowance of up to £40,000.