Delaying your retirement? Here are 2 tips to make the most of later-life work

Although retiring early is a priority for many people, pushing your retirement back for a few short years could be something you’re considering. Nothing in life is set in stone, and there’s no harm in reassessing your plans when new factors come into play.

Indeed, there are plenty of reasons you might now wish to delay your planned retirement age, such as:

• Assessing your prospective retirement income and wanting to save a little more
• Wishing to use your final few years of earnings to support your children and grandchildren
• Enjoying your career and wanting to commit a few more years to it
• Timing your retirement with that of your spouse, who may be due to stop working in a few years’ time.

Whatever the reason for delaying your retirement, it’s important to maximise the financial opportunities that may present themselves in your final career years.

Here are two key ways to make the most of them.

1. Consider prioritising pension contributions

It is likely that, over the course of your career, you have come to realise just how important a role your pension savings could play in your later life. Of all the assets that can help fund your retirement, your pension may be one of the most valuable.

So, if you are planning to push your retirement back for a few years, taking this career extension as an opportunity to prioritise boosting your pension fund could be hugely beneficial.

There are two key reasons for this: the Lifetime Allowance (LTA) and Annual Allowance.

The Lifetime Allowance tax charge has been removed, enabling many pension holders to keep saving tax-efficiently

In the 2023 Spring Budget, the Chancellor announced that the LTA tax charge would be removed with immediate effect.

Previously, the LTA limited how much pension wealth a person could hold in total without being subject to an additional tax bill of up to 55% when they drew their pension. The limit stood at £1,073,100 before the tax charge was rescinded.

This is welcome news for pension holders who were previously concerned about subjecting their pension to an additional tax charge upon withdrawal.

In fact, Professional Adviser reveals that, from a survey of higher-rate taxpayers, 23% said they have delayed, or are planning to delay, their retirement based on this new legislation. What’s more, those who have upped their pension contributions in light of this news are putting in an average of £650 more every month.

So, if you’re set to work for a few more years than originally planned, now could be an ideal time to prioritise routing funds into your pension pot.

Doing so could mean you boost your later-life income substantially, all while remaining tax-efficient where possible.

Your Annual Allowance is likely to reduce once you begin drawing from your pension

As of the 2023/24 tax year, you can pay up to £60,000 or your total earnings, whichever is lower, into your pension each year while still receiving tax relief.

However, it’s important to note that once you have accessed your pension flexibly, you trigger what is known as the “Money Purchase Annual Allowance” (MPAA). The MPAA reduces your Annual Allowance from £60,000 to just £10,000.

As a result, your pension saving opportunities are likely to decrease significantly once you take your pension. As such, while you’re in your final career years, it may be prudent to make the most of your Annual Allowance before it reduces upon a pension withdrawal.

Each of these important pension-saving perks could make a big difference to your retirement fund later on, and may make delaying your retirement all the more lucrative.

2. Use workplace benefits while you have them and put plans in place for retirement

Another way to make the most of financial opportunities is to maximise your use of workplace benefits, and consider alternative arrangements you may need to make once you stop working.

In your final few retirement years, it could be helpful to utilise perks like:

• Free gym membership
• Healthcare, including mental health support
• Your paid holiday allowance.

And, crucially, it may be wise to consider the “umbrella” cover you could be receiving through your employment and to begin making plans for when it stops. This can include life insurance and critical illness cover, both of which form an essential part of any secure financial plan.

Indeed, if you receive life or critical illness insurance through your employer, now might be the time to consider your next steps. If you wait until you’ve already retired, there could be a gap between stopping work and taking out independent cover, which could leave you vulnerable to financial shocks.

Figuring out how much you may need to pay towards a package of protection once you stop working can help you put a financial plan in place for when you retire.

Consulting a Financial Planner before you retire can put you in a powerful position for the future

Working with a Financial Planner can be extremely constructive here. We can guide you through:

• Adjusting your retirement age to a later date
• Prioritising pension contributions and other tax-efficient vehicles where appropriate
• Creating a protection plan for once you’ve stopped working
• Assessing your prospective later-life income.

To learn more about how to make the most of your final career years, email us at enquiries@pen-life.co.uk, or call 01904 661140.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment 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. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor. Workplace pensions are regulated by The Pension Regulator.

Note that financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse. Cover is subject to terms and conditions and may have exclusions.

All information is correct at the time of writing and is subject to change in the future.