Guides

Your guide to retirement: can you work and what can you earn?

7 minutes

You may want to keep working when you hit State Pension age, and that’s fine. There are just a few things you need to know first.

Make the retirement of your dreams a reality

Almost at State Pension age and wondering whether retirement is for you? You have options. Despite hitting their 70s and 80s, thousands of Brits around the UK choose to keep working. Some do so to top up their income, whereas others continue to work for social and health reasons. There’s no requirement for you to stop working the minute you can claim your pension.

Of course, you may choose to have some time away from work to enjoy retirement and live off your pension. If you’re planning to unretire after a few years, you do have the option to do so. Around one in four retirees in the UK actively choose to unretire after five years and head back into work.

If you think working past retirement might be for you, there are a few things you need to know and consider. We cover it all below.

Can you work after retirement?

Yes, no rule says you can’t work into retirement. In fact, well over 440,000 Brits aged 70 or older still work in some capacity. Whether part-time, full-time or self-employed, if you wish to work past your State Pension age, you’re fully entitled to.

Can you go back to work after you retire?

Nothing is stopping you from heading back to work even after you’ve been retired for some time. Many choose to go back to work as a way to top up their income as well as for personal reasons, such as socialising or health.

There are many reasons why you might choose to go back to work. These include:

  • To top up existing income
  • To finish paying off larger debts, such as mortgages
  • To maintain independence
  • To remain mentally and physically healthy

Please note that if you have a defined contribution pension and choose to return to work and want to pay into your pension, you may be capped through the Money Purchase Annual Allowance (MPAA). The aim of the allowance is to restrict people ‘recycling’ money back into their pensions to take advantage of tax relief. In 2023/24 the allowance is £10,000. If you are unsure if you will trigger the MPAA, it is worth seeking financial advice.

Can you retire at any time if you’re working post-State Pension age?

Technically, you can retire at any time – you just can’t claim your State Pension until you hit State Pension age. State Pension age differs from person to person, but you can find out what your State Pension age is on the GOV.UK website. Therefore, if you’re working into your 70s and 80s, you’ll be able to retire and claim your pension. You’ll just need to give your employer notice first.

With no default age for retirement in the UK, you can technically start claiming your workplace pension from age 55 (depending on the provider) and your State Pension when you hit your State Pension age.

Can your employer force you to retire?

Your employer can no longer force you to retire based on your age either. Before April 2011, employers could request employees retire, but this is no longer the case. However, there are some exceptions where an employer can force you to retire by law. These include industries that have an age limit set by law, such as the fire service, or jobs that require a specific level of physical and mental competence.

When can you claim a workplace or private pension?

Depending on your pension provider, you may be able to claim your workplace or private pension from age 55 onwards. However, if this isn’t the case, you’ll likely be able to start claiming between age 60 and 65 years old.

When you hit the right age to claim your private or workplace pension, you’ll be able to take up to 25% of your pension pot tax-free, so you’ll need to decide how you receive the other 75%. You have the following options:

  • Defer claiming it and leave it invested until you’re ready.
  • Claim it all. It’s worth noting you could face a larger tax bill that year to accommodate the payout.
  • Drawdown money from your pension pot as and when you need it. You’ll have the flexibility to access savings, but you’ll need to make sure it’s enough to get you by.
  • Additionally, you can invest your pension into an annuity, which offers you a guaranteed, steady income when you retire.

It’s possible to combine your options; you can take your 25% tax-free amount and invest the other 75% in an annuity, for example.

If you’re unsure what you want or what you should do with it, you can speak to a retirement advice specialist who can advise on possible routes that will work for you.

Can you defer your State Pension?

It’s possible to defer claiming your State Pension when you hit your State Pension age. For every week you defer it, your State Pension amount will increase, but you’ll need to avoid claiming it for at least nine weeks. If you can afford to do it, under the new State Pension your total amount will increase by up to 1% for every nine weeks it’s deferred. That means, if you hold off claiming your State Pension for a year, your amount could increase by 5.8%.

For those eligible to claim their State Pension before 6th April 2016, the rules for deference are slightly different. If you defer your pension for at least five weeks, your pension will increase by 1%. Therefore, if you’ve deferred for a year (52 weeks), it works out at an increase of 10.4%.

Before deferring your State Pension, it’s worth discussing your options with a retirement advice specialist. If you can afford to hold off claiming your State Pension and want to increase the amount, it might be a good choice to defer it. However, if your circumstances mean you’ll struggle without it as a source of income, deference may not be the best choice. That’s why it’s best to speak to someone who can talk you through your options.

There may also be circumstances where working into your retirement years is both right and wrong for you. Before you consider your options, it’s worth considering the following:

When is it right for you?

When is it wrong for you?

  • If you’re fit and healthy enough to continue working, you may choose to defer your State Pension.
  • If you want to increase your total State Pension amount.
  • If you’re heading back to work after claiming some of your State Pension. You can only stop and start it again once though.
  • If you can afford to live off other savings, assets, income or private pensions.
  • If you’re unable to work, such as through ill-health, and require some form of income.
  • If you’ve already deferred your State Pension and started claiming again.
  • If you have little income or savings and need your State Pension as a source of income.
  • If you or a partner claim certain benefits, such as income support, you won’t receive the increase.

Need support with your retirement planning?

We can help. Speak to one of our friendly advisers today and have a commitment-free chat about your retirement plans. 

How much can you earn after retirement?

There’s no limit to how much you can earn in retirement as you’ll continue to pay taxes. If you wanted to, you could work full-time whilst claiming your pension. Unfortunately, doing this could push you into a higher tax bracket, causing you to pay more tax than if you were to just continue working and defer your pension, or vice versa.

Is there a limit on how many hours you can work?

The same working rights apply to you post-State Pension age as they did before you reached pensionable age. As you are covered under employment law, you won’t be able to work more than 48 hours a week, unless you choose to opt out or have already opted out.

Likewise, there’s no minimum number of hours you can work either. The choice and options sit between you and your employer. If you wish to adjust your hours to full-time or part-time, you’ll need to discuss options with your employer.

Can you work part-time and claim a pension?

Yes, it’s possible to trade in your full-time job to work part-time and claim your pension at the same time. It’s worth noting that the amount you receive from your pension and part-time work will be taxed, so if both incomes push you into the higher tax bracket, you’ll need to account for it.

Can you work full-time and claim a pension?

If it suits you, you can continue to work full-time whilst claiming your pension. However, you may find more benefits from deferring your pension and accessing it at a later date. For one, you can accumulate more on your State Pension if you leave it for at least nine weeks. There’s a slight risk that you may earn more by combining your pension and salary, meaning you’ll have to pay more in tax. If you earn more than £50,271 in a tax year, you’ll have to pay tax at a rate of 40%.

What type of work can you do?

Almost anything – there are a handful of jobs that do require you to retire at a certain age, but these are defined by law. The fire service, army and police have set ages for existing employees to retire. You won’t be able to enter these professions when you hit retirement age either.

Aside from those and a few others, which are normally dictated by individual employers and companies, the world is your oyster. You can keep working at your current company, for yourself or try something new altogether. The Equality Act 2010 protects you against age-based discrimination, so there’s no reason why you can’t keep your job or find something different.

What are the advantages and disadvantages of working in retirement?

Continuing to work is the right choice for some but might not be the right choice for others. You’ll need to weigh up your options and determine your priorities. For example, if you require income, it may not be feasible to work and claim your pension at the same time.

Advantages

Disadvantages

  • You’ll continue to top up your income rather than dropping from a steady salary straight into your pension payments. For many, this immediate switch can mean a drop in tax bracket and less income than you’re used to.
  • By continuing to work, you’ll continue to socialise. Retirement can become lonely, especially if you have fewer activities planned in the week.
  • Working enables you to stay physically active, something that’s not always easy to achieve in retirement. As you’re following a set routine, you’re keeping your body busy.
  • It could prove beneficial for your mental health. As well as socialisation and physical activity, you’ll keep your mind active and occupied.
  • Routines help us thrive, so when they’re removed, it can feel daunting. Continuing to work in some capacity will give you a level of routine every day.
  • Retirement can be very lonely, especially as you get older. Many even express a loss of purpose; that’s why working can help you to maintain a level of normality.
  • If you choose to claim your pension whilst continuing to work full-time, it could put you in a higher tax bracket. It might work out more in your favour to defer claiming your State Pension and workplace pensions until you fully retire.
  • Even changing your working habits from full-time to part-time or reduced hours could impact the payments you receive from your pension. You could end up paying more in tax with fewer hours worked.
  • You won’t have the freedom you initially hoped for when you hit State Pension age. If you had big plans to calm down and relax, but choose to work instead, you won’t be able to fully capitalise on your well-earned time away from working.
  • Choosing to go back to work after some time spent in retirement could be hard to adjust to. When you’re removed from the routine and rules of working life, it can be difficult to accept them at first. Consider the feeling of adjusting back to work after just a few days off. The transition period can be much more challenging after a few months or even years away from work.

 

Nearing State Pension age? Try our retirement advice service

At LV=, we’re here to help you understand retirement. As part of our retirement advice service, we’ll support you in finding the right options for you when you retire. How can we help you today? Get in touch.

FAQs

Can you work after medical retirement?

Retiring due to medical or ill-health reasons doesn’t mean you’re no longer able to work. It could mean that the role you were originally doing was too challenging for your abilities. You may choose to find a new job altogether that’s more suitable.

Alternatively, you may not be well enough to continue working, meaning you need to access your pension early if you don’t have income protection. If this is the case, you may be able to pause claiming your pension to go back to work, but only if you’re able to.

Do national insurance contributions change if you work through retirement?

Yes. Once you hit your State Pension age, you’ll stop paying National Insurance contributions as you’re eligible to claim your State Pension. However, if you’re self-employed, you’ll continue to pay Class 4 contributions until the end of the tax year when you reach State Pension age.

How does tax work when you retire?

Unless you fall into a new tax bracket, the way you’re taxed stays the same. For those claiming a pension and working at the same time, your income will increase, meaning you could fall into a much higher tax bracket. In this case, you’ll pay a higher percentage on your income. Alternatively, your income may fall if you solely claim your pension, causing you to pay less tax.

As long as your income sits above your standard Personal Allowance (£12,570 between 2023-2024), you’ll pay tax on anything you earn above this figure.

What happens to your pension if you go to prison?

For the period of time you’re in prison, you’ll lose your rights to a pension. These rights are granted back when you’re released. If you’re at the age where you can claim your State Pension, you’ll be able to do so once you leave prison. The same rule applies for both State and private pensions.