Article How returning to work after retirement affects your pension

In what some are calling ‘The Great Unretirement’, an increasing number of retirees are coming back into the workforce. Their reasons for doing so are as individual as they are, but the cost of living has been a driver for many to find ways to increase their financial security. In December 2022 there were 155,670 additional payrolled employees aged 50 to 64 compared with December 2021.¹

If you’re thinking about returning to work after a long absence, or making a phased return to work, there’s quite a few things to consider. Here we’ll explore how ‘unretirement’ could affect your finances, including implications for both your State and workplace pensions, and any potential impact on your taxes.

This article is based on pension and tax information as at February 2024 and should not be taken as financial advice. 

What returning to work could mean for your pension

Unretiring can be an exciting idea. Outside of financial reasons, it could also have added benefits such as mental stimulation and social connection. In our new ‘Second 50’ research, people who thought about a phased approach to retirement said they wanted to keep their brain active and enjoyed working life. 

If you’ve already been taking benefits from a workplace or State pension before returning to employment, there may be potential implications to consider. 

1. What happens to my State Pension if I go back to work?

If you’ve reached State Pension age, you should be able to keep claiming it even if you return to work. If you haven’t reached State Pension age, working and making National Insurance Contributions (NICs) might increase the amount of State Pension you could get. The State Pension age is currently 66 but rising to 67 by 2028).

You need 10 qualifying years of National Insurance contributions to be able to claim any State Pension, and 35 qualifying years to claim the full new State Pension.² A qualifying year is a tax year in which you have paid or been credited with enough NICs to make that year count towards your State Pension. If you don’t yet have 35 qualifying years, working for longer could therefore boost this, increasing the amount of State Pension you get.

Can I defer my State Pension if I go back to work?

If you’ve claimed the State Pension in the past, you can stop claiming and defer future payments. But you can only do this once, and you must normally be living in the UK. 

The State Pension isn’t given to you automatically when you reach State Pension age, you must claim it. The Government should send you a letter at least two months before you reach State Pension age with information on how to do this. So, if you’ve not yet claimed and wish to defer, you don’t have to do anything. Your pension will be deferred automatically until you take action.

The Government offers useful information for those who want to understand more about how deferring affects your State Pension. You can find it on the government page, Delay (defer) your State Pension.

2. Will I get a new workplace pension if I go back to work?

People under State Pension age

If you return to employment and are below State Pension age earning more than £10,000 a year, you should be automatically enrolled in a workplace pension scheme. You’ll contribute to your pension, as will your employer. You may also benefit from government tax relief – the amount can vary depending on your individual circumstances. Find out more about tax relief on the MoneyHelper page Tax relief on your pension contributions.

People over State Pensions age

If you’re above State Pension age when you go back into work, you won’t be automatically enrolled in a workplace pension scheme. However, you have the right to opt in up to the age of 74, depending on your earnings.³ You won’t get tax relief on pension contributions once you’re over 75, although you may still receive employer contributions if they choose to do so.³

People returning to a previous employer

If you return to a past employer where you’d previously been paying into a pension, you might be able to pick up where you left off and resume contributions into the same pension pot. However, there’s also a chance you may have to start a new pot as if you were a new starter. Check in with your employer to find out how they deal with pensions for returning employees. 

Watch out for any benefits you might lose

Returning to work might impact certain pension benefits you have, like a protected pension age. This is when the age at which you can take benefits from your pension is fixed or ‘protected’ – even if it’s lower than the normal minimum pension age (NMPA). The NMPA is currently age 55 but is rising to 57 in April 2028.⁴

You may have a protected pension age if you were part of an occupational-style scheme pension, such as a defined contribution (DC) or defined benefit (DB) scheme. If you do, you might lose this protection if you return to work. If this is the case, any pension payment made before you reach the NMPA will be classed as an ‘unauthorised payment’. This is a payment made outside of tax rules and can be subject to tax penalties. 

We strongly recommend you take financial advice if you think the protected pension age may have applied to you. You can find an adviser at MoneyHelper – there’s likely to be a cost for financial advice.

3. Can I keep saving into, or withdrawing from my existing pensions if I unretire?

If you return to work after retirement, you should be able to contribute to a workplace pension up to age 75. Your Annual Allowance allows you to make a total contribution of £60,000 a year to benefit from tax relief across all pension plans before attracting an annual allowance charge.⁵

If you’ve already started taking money out of your pension pots, you may have triggered the Money Purchase Annual Allowance (MPAA). This means your £60,000 Annual Allowance will reduce to £10,000 each tax year. Only income from a DC pension type affects the MPAA – it won’t be triggered by receiving income from a DB pension scheme. 

If you save the maximum £10,000 into your DC pension, you can still pay £50,000 into your DB pension before attracting a charge. This is known as the alternative annual allowance. Find out more about the MPAA and alternative annual allowance on the MoneyHelper page, What is the Money Purchase Annual Allowance?

It’s estimated that there’s more than £26.6 billion sitting in lost and forgotten pension pots, with pots in the 55 to 74-year-old age group worth an average £16,000.⁶ You may want to consider tracking down any old pensions you may have before you return to work. Uncovering these could give a more accurate picture of your financial situation and might affect your decision to unretire. You can search for lost pensions through the Government pensions tracing service.

What unretiring means for tax

If you’ve reached State Pension age you’ll continue to pay Income Tax, but won’t pay NICs on your earnings. One exception to this is if you’re self-employed and pay Class 4 NICs. In this case you stop paying these at the end of the tax year in which you reach State Pension age. Learn more about this in the Government’s guide to National Insurance and tax after State Pension age. 

Not paying NICs could potentially provide a significant financial incentive to return to work if you’re above this age threshold. For example, if you’re over the State Pension age and earn between £242 to £967 per week, you won’t have to pay the employee national insurance of 8% of your weekly earnings that everyone else pays. 

Your age doesn’t affect whether you pay Income Tax. You’ll continue to pay this if your taxable income – including any private and State Pension income – is more than your tax-free allowance. The standard Personal Allowance is £12,570, and above this you pay tax whatever age you are.

For those who are below State Pension age and returning to work, your NICs will need to be continued in line with the tax rules.

A retirement of activity and change

Life expectancy is on the rise. Already, one in four people born today can expect to live to 100. As we live longer lives, our retirements can become times of exploration and contribution, if that’s what we want. 

There could be exciting benefits to ‘unretirement’ – from meeting new people, to building up your retirement pot. However, it’s important to make sure you’re fully informed about the implications for your pension savings and tax before doing so. Consider speaking to a financial adviser for advice that’s tailored to your unique circumstances. MoneyHelper has published a guide to finding a financial adviser, but remember there will usually be a charge for advice. 

Read more about pensions, work and money on our Money tips hub.