Why retirees are having to return to work

Statistics show that the number of older people working
is on the rise. According to the Office for National Statistics, the proportion of
50 to 64-year-olds in work in the UK has climbed from 60% in 2000 to more than
70% now. And, the number of people working beyond 65 has doubled to about 10%.

So why are
more and more older people choosing to stay in work? And why are increasing numbers
of retirees choosing to return to the workplace even after they have retired?

Increase
in retirees returning to work due to ‘the lack of financial advice’

According to research in Ageing & Society, 25% of retirees return to work, about half of these within five years of retirement.

Dr Loretta Platts, study leader, said: “Access to paid work
in later life may enable retirees to supplement their pensions, stay mentally and physically
active, and maintain contact with others.”

One of the main reasons that retirees
are returning to work is because they face financial pressures after originally
stopping work.

Zurich says the increase in retirees
returning to the workforce since the introduction of Pension Freedoms four
years ago is due to ‘the amount of options available and the lack of financial
advice’.

In the four years
since rules were introduced allowing access to pension funds from age 55, more
than £28 billion has been taken out by nearly 2.2 million people. Indeed, data
from HM Revenue & Customs shows that 336,000 savers withdrew £2.75 billion
from their pension funds between March and June this year alone.

While Pension Freedoms have given
retirees much more flexibility to decide what to do with their pension savings,
many are taking lump sums or regular withdrawals without first seeking
professional advice.

Analysis from the Association of British Insurers (ABI) has revealed ‘alarmingly low levels of retirement
readiness’. A recent ABI study found that more than a third of people who
accessed some of their pension via drawdown between April and September 2018,
did so without taking any form of financial advice.

For example, according to research from
financial company Zurich, more than 300,000 people are now making regular
withdrawals from a pension – even though they are still in employment.

The research suggests that many people are at
risk of spending their pension cash before they fully retire and are heading
for a lower standard of living in later life.

Zurich found that more than half of those dipping
in early are full-time workers with many admitting they could live comfortably
without taking this extra pension cash. Nearly a third of those in part-time
work are also accessing pension cash when they don’t really need to.

Zurich’s Alistair Wilson says: “Savers should only consider dipping into their pension as a last resort.
If people need to top up their salary, or pay off a debt, it is more tax
efficient to use money from ISAs or other investments.

“Making a mistake with your
pension can be financially disastrous – and could mean working for longer or
facing financial hardship in retirement. Getting guidance or advice on your
pension is essential.”

Why financial advice on retirement is so important

Yvonne Braun, the ABI’s
Director of Long-Term Savings Policy, said: “Pension Freedoms gave consumers
many more options and flexibility in their retirement, but with greater choice
comes greater risks.

“To see levels of advice
hitting new lows is disturbing and risks leaving thousands of elderly consumers
facing poverty later on in their retirement.”

This view is echoed by Alistair
Wilson at Zurich. He says: “There is a lot to think about when you’re planning
for retirement, and your circumstances will change over time, which is why it
is often best to speak to an adviser.

“There’s no doubt the Pensions
Freedoms have been hugely popular but for some retirees they have come at a
high price. People now face more complicated decisions in retirement and it’s
clear not everyone is getting it right.”

There are three excellent reasons why you should speak to an adviser before you start accessing your pension savings:

1. You could increase your pension income

Lots of research shows that
people who take financial advice end up with a higher level of pension savings
when they retire.

For example, a study by Unbiased and AXA Life Invest revealed that nearly half (43%) of UK savers approaching retirement increased their retirement savings levels by £98 a month as a direct result of taking financial advice.

The 2017 Value of Advice report by Standard Life arrives at a similar conclusion. It says that, overall, those “who work with a financial planner are an average of £40,000 better off than people who have not taken advice”.

2. You can ensure your investment portfolio remains balanced

If you decide to use Flexible
Drawdown to access your pension pot, your funds may remain invested even after
retirement. So, it’s important that you choose the right level of investment
risk – even when you are thinking of stopping work.

An adviser will regularly review your portfolio to ensure it remains appropriate for your risk profile. By doing this, they can help you to ensure you can achieve the level of income that you need in retirement.

3. You could reduce the amount of tax that you pay

If you take your pension savings without advice there is a strong chance that you could end up paying more tax than you need to.

For example, you can usually take
up to 25% of the amount built up in your pension as a tax-free lump sum.
However, if you draw any more than that, you’ll pay Income Tax on the amount.
If you withdraw a large sum, you could push yourself in a higher tax bracket
and end up paying 40% or even 45% tax on your withdrawal.

Of course, losing a portion of
your pension fund to tax means that you may no longer have sufficient savings
to sustain your desired standard of living in retirement.

An expert pensions adviser can help you both build up your pension fund, and help you draw the income you need in retirement in a sustainable and tax-efficient way.

Get
in touch

Research has shown that seeking advice from an adviser can help you to better understand your retirement options. So, if you need advice on your retirement planning, email info@depledgeswm.com or call (0161) 8080200.

Please
note

A pension is a long-term
investment not normally accessible until age 55. Investments carry risk. The value of your investment (and the income from them) 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. 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.