While some OAPs can’t afford to retire, many want to carry on working to stay active and sociable
More than one in 10 over-65s are still working, official figures show, while separate research from pension specialists Retirement Advantage suggests roughly half of today’s over-50s want to remain employed beyond the state pension age.
While some cannot afford to retire, many more want to carry on working to stay active and sociable.
Work it out Sarah Coles, personal finance analyst at Hargreaves Lansdown, says working into later life can be a lifeline for anybody with insufficient pension income, or whose plans have been knocked off course by bereavement or divorce.
“To ease yourself into flexible retirement it pays to know the secrets hidden in the pension and employment small print,” she says.
Many fail to realise they now have the right to work beyond state pension age and can ask their employer to reduce their hours.
“Your employer cannot just dismiss your request without a valid reason and must first try to find a way to make it work,” Coles adds.
If you are earning enough to live on, you can defer taking your state pension and get an extra 1 per cent income for every nine weeks you delay.
However, if you defer for just one year you will need to live another 17 years to make up the sacrificed income, Coles calculates, so the sums only work for healthier people with high life expectancy.
Similarly, if you defer buying an annuity while you carry on working you should get more income later when your life expectancy is lower, although again, you need to offset this against the losses from your deferred income.
Coles says a better option may be to defer taking a “final salary” pension, as schemes typically pay an extra 8 per cent for each year you delay: “This is generous and makes deferral well worth considering.”
Remember you can take income from a pension and pay into another plan at the same time and claim tax relief, although only up to £4,000 a year, she adds.
Tax-free cash Andrew Tully, pensions technical director at Retirement Advantage, suggests using your 25 per cent tax-free pension cash to top up a part-time income: “Avoid taking taxable income in years when you have high income from your employment.”
Another option is to phase your annuity purchase using some of your pot to buy a regular income and leaving the rest invested.”
Again you reduce your tax bill by avoiding taking income you do not need and claim a higher annuity rate later.”
You can take income from a pension and pay into another plan at the same time and claim tax relief
Income drawdown, which involves leaving your money invested and making withdrawals as you need them, also offers flexibility.
“In contrast to a traditional annuity, you can reduce or stop your income if you return to work,” adds Tully.
Other investments such as tax-free Isas can also help you generate a flexible income.
Follow your dream MoneyToTheMasses.com director Damien Fahy says many older people are making a fresh start by launching a business based around a hobby: “People wrongly assume that the best entrepreneurs are young.
“Yet those late in their careers have a wealth of experience, knowledge and contacts that increase the chances of a side business succeeding.”
He suggests starting small: “Can you make a few hundred pounds a month from a passion or skill you already have?
“It is cheap and simple to launch a website or start a blog and you can build this up in your spare time while still employed, before taking the plunge.”
It is never too late to start the transition.
Fahy adds: “If you do something you enjoy you will never want to retire from it.”