Woman, 79, has 'no intentions to retire' but warned of 'implications' that could drain her pension
Nearly two-thirds of working retirees are at risk of falling into a tax trap
PEXELS
For many retirees, working after state pension age can be a way to feel useful, however experts have warned that there are tax implications to be aware of.
With more than a quarter of over 55s planning to ‘unretire’ and do paid work in retirement, they are urged to seek financial advice before falling into any tax traps that could drain their pension pots.
Yvonne Kirchgaesser has worked on and off since she was 19 and it enjoys it as it makes her feel useful.
After her husband died in 2019, the 79 year old found that work gave her structure, purpose and a zest for life again.
Not only does she garden, she completes maintenance duties in her local pub.
Kirchgaessers' duties consist of deadheading the potted geraniums and hanging baskets, watering the big tubs, installing new planters, painting, tidying the pub tables ready for customers, sweeping up and clearing out the ashtrays.
To avoid falling foul of a tax trap, Britons are urged to make sure they’re well-informed and seek advice
GETTY"Work helps with grief," she told The Telegraph.
Kirchgaesser said: "Now my husband is no longer here I concentrate on other things and other people. I don’t want to be on my own at 79, and I want to be useful."
Since the pandemic, there has been a boom in older people returning to the work force to help support themselves and their families, especially amid the cost of living crisis.
Older workers are providing a valuable resource for employers, given Britain’s ageing population, and the opportunity to share the skills and experience they’ve gained throughout their working lives.
However, the pensioners who are part of the 'unretirement' movement are urged to seek financial advice before returning to the work force as this could have serious implications.
Nearly two-thirds (63 per cent ) of UK over 55s who are working, or plan to work, in their retirement haven’t checked if they could be paying higher tax bills by doing so, according to research commissioned by Wesleyan Financial Services.
Unretiring is where an individual continues to work in some capacity after ‘retiring’, however, the research highlights that people planning to do this are potentially overlooking the tax implications of this decision, and could be falling into a ‘tax trap’.
Linda Wallace, managing director of Wesleyan Financial Services said: “The traditional goals of ‘retire and stop’ are changing. ‘Unretiring’ is no longer a trend but a permanent feature of society and it can offer hugely positive opportunities for people later in life.
"But before making any decisions about whether to unretire, bear in mind that working in retirement also comes with tax implications.
“If you are already taking money out of your retirement savings through an annuity or drawdown or are receiving the state pension, any extra income will boost your earnings and potentially add to your tax bill if the amount is above the personal tax threshold, which is currently £12,570.
"Combining salary with pension income could also push you into a higher tax bracket, increasing your tax liability. Note, tax treatment depends on everyone’s individual circumstances and may be subject to change in the future.
“Also, 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.
"Pensions and investments are complicated areas to understand and going back to work could make matters even more complex. To avoid falling foul make sure you’re well-informed and seek advice.”
Tips to avoid the ‘tax trap’
- Seek Professional Advice
- Understand Tax-Free Allowance
- Review Pension Withdrawals: If someone has accessed their pension using flexible drawdown, they should be aware of the Money Purchase Annual Allowance (MPAA)
- Plan Income Streams: People should consider how their different sources of income (state pension, private pensions, new salary) interact. Keeping the total income within the basic rate tax band can help minimize the tax burden. The basic rate for the 2023/24 tax year is 20 per cent on income between £12,571 and £50,270
- Utilise Spousal Transfers: If someone's spouse or partner has unused personal allowance, transferring a portion of their income to them can help reduce the overall tax burden
- Maximise Tax Reliefs and Allowances
- Timing of Income: If possible, people should aim to spread out their income to avoid being pushed into a higher tax bracket in a single tax year
- Keep Records: Maintain detailed records of all one's income sources, pension withdrawals, and tax relief claims