Retirement in the UK has traditionally involved stopping working at a set point in time – usually 60 or 65 – with a set amount of guaranteed income. This income would normally be in the form of a defined benefit (DB) pension or an annuity, perhaps with a smaller personal pension, such as a SIPP, sat alongside it.

The state pension system has also been designed based on this clean break between working and not working. The state pension ages of men and women will equalise at 65 in 2018 – the women’s state pension age is being gradually increased from 60 at the moment – before rising to 66 in 2020 and 67 in 2028.

The Government plans to bring in a further increase to 68 by 2039 and has explicitly stated it will ‘aim for up to 32%...as the right proportion of adult life to spend in receipt of the state pension’.

Why things are changing

Throughout the pensions system the idea that retirement means stopping working altogether has become deeply ingrained.

For many people this is starting to change. As defined benefit pensions have all but died off in the private sector, defined contribution (DC) plans – where you build up your own pot of money in order to generate an income in retirement – have become the main retirement savings vehicle for most people.

And rules introduced in April 2015 mean that savers in DC plans can spend and invest their money how they want from age 55. This creates a new dynamic where people are more likely to continue working while drawing from their retirement fund.

The concept of unretirement

Research published by Manchester University and King’s College London on the phenomenon of ‘unretirement’ emphasises this shifting dynamic.

The study reveals around one in four retirees in the UK return to work within five years of retiring. Men are more likely to unretire than women, as are people who are in good health, those who are better educated and those still paying off a mortgage.

If you’re thinking about returning to work having already accessed your DC pension, there are a few things you need to consider.

Firstly, do you have ‘protection’ on a large pension worth £1m+? If you do and don’t want to lose it – and pay a potentially hefty tax charge – you need to make sure you don’t accidentally make a contribution and void the protection. This is a particular danger as automatic enrolment means all companies are required to put you in a pension scheme unless you opt-out.

Secondly, if you have taken any taxable income from your pension – that is over and above the 25% tax-free lump sum – your ability to continue saving in a pension will be severely restricted.

While the annual allowance for tax-advantaged pension saving is usually £40,000, those who have accessed their pension flexibly see this slashed to just £4,000.

Tom Selby,

Senior Analyst, AJ Bell

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