More than a million now work past age 65, and the numbers are steadily rising. While not everybody is fit enough to carry on working, there are huge financial advantages in doing so.
The first is that instead of depleting your pension by making withdrawals, you can leave it to grow in value.
You might be surprised at the impact.
Somebody who has built up the average pension pot of £107,300 at 60 and left it untouched for a further 10 years would see its value rise sharply.
Assuming an average annual return of five percent a year after charges, their pot would grow to £174,780 by age 70. Inflation will have reduced its spending power, but it should still be worth far more in real terms.
If they invested extra money into their pension at the same time, it would grow even more.
Someone who paid in £500 a month and increased their contribution by three percent year would have built up savings of £264,549 by age 70.
That’s a staggering £157,249 more than at age 60.
Another major advantage is that at 70 their pension won’t have to last as long as if they’d starting taking it at 60, allowing bigger withdrawals.
Someone using £100,000 to buy a single life annuity at age 60 would get a level income of £6,093 a year. At 70, they’d get £7,627. That’s 25 percent more.
The default retirement age has gone and most employers cannot force you to retire, with exceptions such as the fire service, said Andrew Tully, technical services director at Nucleus Financial. “If you stay with your current employer beyond retirement age, you can usually remain in its defined contribution company pension scheme as before.”
As well as paying in a percentage of your earnings, you will also benefit from tax relief, and an employer contribution, too.
If you join a new employer after state pension age, you won’t be automatically enrolled on its workplace scheme. “However, you can choose to opt-in up to age 74, provided you earn £6,240 or more currently.”
If you are in a defined benefit “final salary” scheme, speak to your employer. “You may be able to defer taking benefits and receive a higher income when you do draw them.”
The self-employed can invest in a personal pension instead, and claim tax relief on contributions.
You can invest up to the £60,000 annual allowance, unless you have previously made pension withdrawals.
In that case, you can only invest up to £10,000, under the money purchase annual allowance (MPAA), designed to stop people recycling pension contributions to claim tax relief.
You can no longer claim tax relief on workplace or personal pension contributions after age 75, said Stephen Lowe, director at retirement specialist Just Group. “That makes paying into a pension much less attractive, although you could still receive employer contributions.”
If heading for a state pension shortfall because you have not made enough qualifying National Insurance (NI) contributions, working on could help you plug the gap, Lowe said.
You need 10 years of NI to get any state pension at all. If under that threshold, working on could push you over so you get at least something.
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Alternatively, you could use your earnings to buy extra state pension, by making voluntary NI contributions.
You stop paying NI once you hit state pension age and cannot build up more NI entitlement after that. On the plus side, you will have more take-home pay as a result.
You can work past retirement age and claim your state pension at the same time, but that has tax implications, Tully said.
All your income, including state pension, is added together and subject to income tax, which could push you into a higher tax bracket.
If this is an issue, consider deferring your state pension, said Lowe.
For every nine weeks you defer you get one percent extra income for life. By deferring for a full year, you will get 5.8 percent more. Minimum deferral period is nine weeks. You can defer claiming for as long as you like.
Deferral may not suit those in poor health as they might not live long enough to recoup the money sacrificed, which takes around 15 years.
Lowe said there is another benefit to working on if fit enough. “It doesn’t just boost your pension, it can keep you active and engaged, as well.”
