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Take your pension…and still work
By Hannah Ricci
After a holiday to celebrate her retirement, 60-year-old Sue Kershaw from Cleckheaton in West Yorkshire decided she didn't want to give up work after all. 'I simply didn't feel old enough to give up my job,' she explains.
Sue had been working full-time as a typist and clerk in the lending services division of the Yorkshire Building Society for almost eight years. After deciding she wasn't ready to throw in the towel, she approached her manager with the idea of reducing her hours to part-time. 'There was absolutely no problem in me returning to work three days a week, and I'm really glad I did. While my decision was partly financial, it was more because I just didn't feel ready to stop; I like the people I work with and enjoy the company,' says Sue.
Patrick Grattan, chief executive at the Third Age Employment Network, says Sue is far from alone. According to a survey by Labour Force, the employment rate at state pension age (SPA) rose to nearly 80% last year - its highest since 1992. 'Over one million people are now choosing to work past retirement age, which I believe is a hugely positive sign of an active generation,' Grattan says. 'Not only are we having families later in life, we're also living longer, healthier lives, so it makes sense to give people the option of working flexibly come retirement age,' he adds.
Research from the Department for Work and Pensions has found that working reduced hours in a current job is the most popular option for phased retirement. It's not suitable for everyone though, as some companies won't allow you to take any of your pension if you are still employed with them.
Uncharted waters
The idea of embarking on something new during retirement is also growing in popularity. Pearl Kay, a 65-year-old from Kirkaldy in Fife, worked as a self-employed management accountant before retiring five years ago. After a holiday in France, Pearl decided to take on the job of producing the local community magazine.
'Then, 18 months ago, I was approached by an online town information company called thebestof.co.uk. I applied for the Fife franchise of the business and got offered it straightaway,' says Pearl. The job involves lots of meetings and networking with local business people to sell advertising space on the website and to find out what's happening in the community. 'I had no previous experience in this area before taking on the job, so it has given me a new lease of life,' she adds.
Pearl is able to work whatever hours she likes, so she can still do the things she enjoys, such as spending time with her grandchildren, and pursue her hobbies. 'The decision to work during retirement was really for personal reasons, but of course it helps financially too.'
New employers
Starting a job with a new employer is another option. There are a number of employers, that have specific policies for recruiting older workers. Asda, for example, is Britain's biggest private sector employer of older workers, with more than 25,000 employees aged 50 or over. It offers flexible contracts ranging from 15 to 37 hours a week and an employee package including grandparent leave, a pension plan and four weeks' paid holiday.
Forbes Eyre-Todd, 65, a former newsagent from Corstorphine in Edinburgh has been working as a supervisor in the home and leisure department of Asda's Chesser branch for seven and a half years, and has no plans to stop. Forbes says: 'I initially retired for three months, but just didn't know what to do with myself at home. I plan to continue for as long as my health allows.'
Proper planning
Of course, if you do choose to work during retirement, there are a number of financial considerations to take into account. You'll probably be earning less than your pre-retirement salary, so you will need to consider whether to buy an annuity or take some money from your pension.
Since 6 April (A-Day), everyone is now entitled to take 25% of their pension fund as tax-free cash when they retire.
Billy Burrows, director at William Burrows Annuities, says: 'I expect most people will choose to take the tax-free cash - which is known as the Pension Commencement Lump Sum - and not draw on their pension, because it creates a great deal of flexibility in retirement.' This means, if you decide to carry on working, you can take the tax-free cash to boost your reduced income and leave the remainder invested for further growth. Also, while you have earnings, it is possible to make further contributions based on that income to boost your pension even more.
Another method of supplementing your earnings is by taking income drawdown - a means of accessing an income from your pot while leaving the rest invested. 'Since A-Day this has been renamed 'unsecured income', and the major change is that maximum levels for withdrawals increases and there is no minimum amount,' explains Billy Burrows. Essentially, this means you can reduce or increase the amount you receive, as and when you choose, to suit your circumstances.
Again, it's not suitable for everyone, says Matt Pitcher, an independent financial adviser at Towry Law: 'Due to the risky nature of income drawdown schemes, you need a pension pot of between £100,000 and £150,000 before it becomes worthwhile.'
And, as long as you don't need the money, there'll be no hurry to buy your new annuity at all: under the new rules there's no longer the compulsion to purchase one by the age of 75. However, this isn't a decision to be taken lightly, as deferring an annuity isn't always advisable. Burrows says: 'While people tend to think annuities offer poor value, they are in fact a hard act to beat, and are a suitable solution for many of us.'
Pitcher says one of the most important factors to consider before returning to work, and something which is often overlooked, is how your income tax will increase if your new income exceeds £32,400. John Lawson, pensions technical manager at Standard Life, agrees: 'What's the point of going back to work when the combined total of earnings and pension income pushes you into the higher-rate tax bracket?'
Also, reaching retirement age doesn't mean you should stop protecting your income, says Pitcher. 'While getting an income protection plan at retirement age may be very expensive and difficult, be sure to keep an emergency reserve fund, so you can get by should anything stop you from working for as long as you had planned to do.'
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