Many of the changes in the 2023 spring Budget were designed to make it easier for people to return to work after retiring.
You may decide to re-enter the job market because you miss the structure or the social elements of the workplace. It could also give you extra income to fund your lifestyle and it may even improve your health.
The good news is that changes made to the little-known Money Purchase Annual Allowance (MPAA) in the spring Budget may allow you to continue building your retirement fund after returning to work.
The MPAA is sometimes triggered when you start drawing flexibly from your pension, and limits the amount you can contribute to your pension each year while still receiving tax relief.
The allowance was increased from £4,000 to £10,000 on 6 April 2023, which means you may be able to make more tax-efficient contributions to your pension if you have already flexibly accessed it and you decide to go back to work.
However, returning to work is a big decision and there are some important considerations to make. As well as the emotional side of the decision, you may need to consider the financial implications, particularly how you can contribute to your pension.
These are some of the things you should think about before returning to work after retiring.
1. Decide on the lifestyle you want
Retirement is your opportunity to enjoy spending time with friends and family, pursue hobbies, and travel. Although returning to work can be positive, it should fit around your goals, so you don’t have to make sacrifices during this phase of your life.
Luckily, one of the major benefits of returning to work at this stage is that you can often be more selective about offers you accept. So, before taking a job, make sure that the work schedule, the overall work environment, and the workload align with your chosen lifestyle.
2. Consider your financial goals
Now you have determined the lifestyle you want, calculate the income you are able to draw from your pension and how much additional income you need from employment to maintain this lifestyle. This will help you when deciding whether to take a job offer or not, and it can also help you decide how much or how little you want to work.
For example, you may be able to work part-time and draw flexibly from your pension at the same time, or you may decide to return to work full-time and leave your retirement fund intact until later in your life.
3. You may need to adjust your retirement plan
Your retirement plan may change if you decide to go back to work. The good news is, you may be able to make more contributions to your retirement fund. However, you must be aware of the potential tax charges you could face.
Since it increased on 6 April 2023, the MPAA allows you to receive tax relief on pension contributions up to £10,000 in the 2023/24 tax year. If your contributions (including employer contributions) exceed this allowance, you may face a tax charge.
Also, if you don’t need to start drawing your State Pension, you may be able to defer your payments. This can increase the amount of State Pension you receive when you do eventually start drawing it. According to MoneyHelper, your payment should increase by 5.8% for every year that you delay claiming.
If you are considering a return to work, you may want to seek some advice about your retirement plan before making any decisions.
4. You may have different opportunities for work
For many people, returning to work offers an opportunity for something new. Now that you are no longer reliant on work to fund your lifestyle, you may want to explore other options. For example, you may decide to start your own business or work as a consultant in your chosen field.
Additionally, the world of work may have changed a lot since you were last searching. While this may make it more difficult for you to find the right position, it also means there are new job options to consider.
Fortunately, career advice can help you navigate the modern job market. Speaking to a professional could help you learn more about your transferrable skills and what options are out there so you can find work that fulfils your emotional and financial needs.
5. It can take time to adjust
Going back to work is a major life transition and it is natural to find the adjustment difficult. You may have less time to spend with friends and family, and it can be stressful learning a new job.
You may need to be patient with yourself and rely on your support network – both professional and personal – if you are having a hard time.
Remember: you have the flexibility to choose the lifestyle you want. So, if you decide that a return to work is not right for you after all, consider speaking with a financial planner and making some changes.
Get in touch
Returning to work after retiring is a big decision, so if you need some advice to guide you, we are here to help.
Email firstname.lastname@example.org or call 0113 262 1242 to speak to an experienced adviser today.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.