Not long ago, retiring meant putting your feet up in front of the fire or pottering about in the garden
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Question: I am 65 next September. I like my job and the company I work for, and I am not sure I really want to retire next September. I would appreciate some advice on the pros and cons of deferring retirement from the usual age. I have seen two financial advisors who haven’t really helped.
Answer: Not so long ago, retiring meant putting your feet up in front of the fire or pottering about in the garden. But that old-fashioned view of retirement doesn’t really fit with how things are today.
These days, people in Britain see retirement very differently. There’s no longer a “one size fits all” approach – what retirement looks like varies from person to person.
Some people can’t wait to finish work and have exciting plans for their free time. Others can’t imagine life without working, so they choose to slow down gradually, try out a new career, or even turn a hobby into a small business.
Working out exactly when to retire can be tricky. There is no ideal retirement age, and instead, the decision very much depends on your personal circumstances. But your decision will partly be driven not only by your working desires, but also by your current savings, any other income (for example, from your wife’s pensions) and expected outgoings, as well as your health.
If you are employed, you cannot be required to stop working at retirement age. However, it is sensible to discuss your future plans with your employer.
If you have reached state pension age (which is currently 66 but gradually increasing to age 67 starting from April 2026), then instead of claiming your state pension, you can defer it. You will be missing out on the initial payments, but the state pension you eventually claim will have increased by about 5.8 per cent for each year you delay, as long as you defer for at least nine weeks. It’s worth noting that if you have poor health or low life expectancy, you might not live long enough to recoup the money you missed out on initially.
You can usually access your private or workplace pensions from age 55 (rising to 57 from April 2028). There is no cut-off age to access your pension. But there may be tax implications if you die after age 75 but before you access it, and you can no longer contribute to a pension beyond age 75 and still receive tax relief.
If your defined benefit pension age is before the date you plan to retire, your income will likely be increased until you start receiving it. The specific way this increase is calculated will be outlined in your scheme’s rules, so it’s a good idea to contact your pension provider for further details.
You should be able to leave your defined contribution pensions, such as self-invested personal pensions, invested until you decide to access them. These pensions should continue to benefit from any contributions you make and tax-free investment growth. Even leaving your pensions for another couple of years could boost your final pension pot.
If you have a workplace pension, then check how it is invested. Some workplace pensions set a glide path where they gradually move investments from equities into less risky assets, such as gilts or bonds. If you prefer to keep the potential for higher investment growth, you may want to change this.
Finally, deferring retirement could give you some valuable time to develop your plans on how to make sure you have the right income to meet your needs in retirement. To help make this easier, if you have several pensions, you could combine them together before you retire.
Just having one or two pensions to manage and track should make it easier, when the time comes, to make an overall decision about what income to take, and in what form.