Want to go back to work? Here are the pros and cons of “unretiring”

Older man working in the office and talking on his smartphone

New research from Paragon Bank has revealed nearly 1 in 10 UK retirees have gone back to work or are thinking about doing so.

The survey of 1,200 over-55s found that 5% of retirees are considering starting work again in some form, while 4% have already done so.

But what are the reasons behind this trend of so-called “unretiring”? And should you do the same?

Read on to learn the benefits and disadvantages of returning to work in later life, whether unretiring could be good for you, and where to go to get help with making the right decision.

Why are so many people returning to work?

It’s fair to say the economy is uncertain right now, and this is thought to be the main reason behind the trend of unretirement.

The cost of living crisis and turbulent financial markets mean people are facing uncertainty around their financial situation, and many see returning to work as the best solution.

Speaking to the Guardian, Stuart Lewis, chief executive of Rest Less, said: “People who thought they could retire comfortably during the pandemic are having to unretire and find work again to bring in extra income and top up their pensions while they still can.”

Another key factor in the great unretirement is the public’s increased focus on health and wellbeing over the last couple of years.

Since Covid-19, more people are prioritising taking better care of themselves, and for many that means staying active. One way to do this is by going back to work, whether at reduced hours or even full-time. 

There are many other reasons you might be interested in the idea of unretiring. But what are some of the social and financial benefits of leaving retirement behind?

The pros of “unretiring”

1. It could help you boost your wealth

The most obvious outcome of pausing retirement and going back to work is that you can boost your income. No doubt you already have a retirement fund which you’ve worked hard over the years to build, and there are several advantages to topping this up in later life.

Simply put, a fresh wage gives you more spare cash. You might be able to use this to top up your pension pot or increase any investments you make, so your retirement funds may stretch a little further.

Additionally, if you earn a salary, you may not need to draw as much from your pension fund, meaning it could sustain your standard of living for longer.

And if the cost of living crisis has you feeling the pinch more than usual, getting a job could relieve some of the pressure of paying for food, petrol, and household bills.

2. You’ll be able to stay connected to the wider world

As you get older, it’s perfectly natural for your social circle to get smaller. You’ll probably prioritise spending more time with family in later life and lose contact with friends you only saw infrequently, but there’s something to consider.

An active social life has many mental health benefits, and one of the easiest ways to socialise is at work.

Speaking to the Metro, Nick Jones, head of retirement living at Lottie, said: “From workplace outings to staying connected, work can boost your socialisation and keep you staying connected, which is hugely important in later life.”

Finding a job again gives you the opportunity to stay in touch with a diverse range of people, something which may otherwise be harder to do in retirement. But before you take the plunge and unretire, you should also think about the potential downsides.

The cons of “unretiring”

1. You’ll have less free time

One of the great joys of retiring is having the luxury of time, which you can fill with travel or by taking up new hobbies. Even if you choose to go back to work for serious, practical reasons, having a job may take that luxury away.

Many people who are unretiring are simply returning to the job they had before retirement, in some cases full-time. But even those choosing shorter hours or finding new part-time employment are having their spare time eroded, which bears consideration.

Do you want to lose the free time you’ve found in retirement? Do the benefits of finding a job outweigh those of enjoying the retirement you’ve worked so hard for? If the answer is no, you may need to rethink your options.

2. You might fall into a “tax trap”

The Pension Freedoms legislation was introduced in 2015 and allows retirees much more flexibility in accessing their defined contribution pensions. One quirk many people are unaware of, though, is that drawing flexible pension benefits may mean you’re affected by the Money Purchase Annual Allowance, or MPAA.

You normally receive tax relief on any contributions you make to your pension up to the Annual Allowance – £40,000 in 2022/23, or 100% of earnings, whichever is lower. Once you start accessing your defined contribution pension flexibly, the MPAA kicks in and reduces this to just £4,000.

So, if you want to continue to boost your pension contributions by returning to work, you may be limited in how much you can pay in tax-efficiently.

The MPAA is only triggered in certain circumstances, subject to specific thresholds, limits, and exceptions. To avoid falling foul and make sure you’re as well-informed as possible, it’s wise to speak to a financial professional before taking any action.

Get in touch

Unretiring offers some hugely positive opportunities, providing they’re right for you and your unique circumstances.

Pensions and investments are complicated areas to understand and going back to work could make matters even more complex. If you’re looking to benefit from unretirement and want some help deciding on the best course of action, there’s a simple solution.

We can help you look at your personal and financial circumstances in detail to figure out how unretiring may affect you. We can give you clear, sensible advice on your retirement options, and what will be best for you.

At BlueSKY, we have more than 20 years’ experience in guiding clients just like you towards the happy, comfortable retirement they dreamed of. If you want to know more, email info@blueskyifas.co.uk or call us on 01189 876655.

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.