Some 63 per cent of UK adults who are working, or plan to ‘unretire’ and do paid work in retirement have not checked if they could be paying higher tax bills by doing so.
Research by Wesleyan, found 26 per cent of over 55s will, or plan, to ‘unretire’ with these individuals potentially overlooking the tax implications of this decision, and falling into a ‘tax trap’.
Additionally, 60 per cent of over 55s who are, or plan to work in retirement said they had no plans to seek retirement advice.
Linda Wallace, managing director of Wesleyan Financial Services, explained how the traditional goals of ‘retire and stop’ were changing with ‘unretiring’ becoming a permanent feature of society.
“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," she said.
“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."
Wallace said those who want to boost their pension contributions by returning to work could be limited in how much they can pay in tax efficiently.
She added: "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."
The survey also revealed some of the reasons retirees were choosing to ‘unretire’ was because they wanted to generate additional income for luxuries like travel and home renovations, 19 per cent said it was to keep their brain active, while 13 per cent said they wanted to give themselves a better sense of purpose.
Wallace urged retirees to review their pension withdrawals, utilise their spousal transfers, maximise tax reliefs and allowances as well as consider NI contributions to avoid the ‘tax trap’.
alina.khan@ft.com
