A large number of over-55s planning to continue working in their retirement could be at risk of falling into a ‘tax trap’, Wesleyan Financial Services has warned.
The firm said more than a quarter (26%) of over-55s are already working or planning to do some form of paid work in retirement. Yet, 63% have not checked if they could be paying higher tax bills by doing so.
Moreover, 60% of over-55s who are planning to work in retirement say they have no plans to seek retirement advice.
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.”
Wallace added that individuals who want to continue to boost their pension contributions by returning to work may also be limited in how much they can pay in tax efficiently.
Wesleyan said the findings of its survey also revealed that there were many motivations behind continuing to work. More than a fifth (22%) of people said they wanted to generate additional income for luxuries like travel and home renovations, while a similar number (19%) said they wanted to keep their brain active. Just under one in 6 (13%) said they wanted to give themselves a better sense of purpose.
Just over a third (36%) of those who were yet to retire said they planned to keep working because they thought they would miss social interaction.
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