Pension Schemes When Earning Over Age Sixty-Five
If you are considering working after retirement age, consult the terms and conditions of your occupational pension scheme to determine the best course of action for your pension benefits. Some occupational pension schemes will charge penalties if you choose to defer withdrawal of your pension benefits beyond the agreed scheme pension age. Other schemes will encourage deferment and offer you extra benefits for delaying your pension; in a defined benefit scheme (see Defined Benefit Schemes) for example, deferring your pension may entitle you to extra years of scheme membership, resulting in more annual pension when you begin drawing the benefits. Your occupational pension scheme may also offer you the chance to draw some or all of your benefits whilst continuing to work, or even allow you to continue to make contributions to your defined contribution (see Defined Contribution Schemes) pension fund whilst drawing a pension. If you are interested in deferring your pension, make an appointment with your pension scheme advisor to discuss your available options and determine how to meet your needs without losing any savings or financial capital.
If you are a member of a defined contribution scheme, a stakeholder pension scheme (see Stakeholder Pensions) or any other kind of money purchase scheme (see Personal Pensions), you may want to consider deferring your pension on retirement more carefully than members of a defined benefit scheme. The advantages and disadvantages of delaying the purchase of an annuity are unfortunately far more complex and subjective than the fees you could face if you draw a defined benefit later than agreed. If you choose to continue working after retirement age, you will usually be allowed to continue making contributions to your pension fund until you decide to purchase an annuity (see Annuities). You will need to check whether your pension scheme charges people a fee for converting their fund beyond the usual retirement age, and you will have to continue to pay administration fees for the management of your investment.
However, the nature of money purchase schemes mean that the time you retire will have a direct impact on the value of the annuity your fund can purchase. When you reach retirement age and you have the opportunity to convert your pension fund into an annuity, make sure that you take advice on whether the current economic conditions are ones likely to enable you to purchase a generous annuity. If economic conditions are poor, perhaps because interest and annuity rates are low, it is probably in your best interests to delay the purchase of an annuity. If you are planning to continue to work and/or have other sources of income so you are not reliant on purchasing an annuity immediately for financial reasons, you can delay the purchase until economic conditions have improved. You may find that in a few years annuity rates are higher and your pension fund is able to purchase you more. Remember, money purchase schemes invest your pension fund and any kind of investment contains an inherent amount of risk. Your pension fund is not guaranteed to grow if you invest it for a longer period of time. If economic conditions deteriorate or the investment market becomes unstable, the value of your pension fund could decrease, perhaps dramatically, and you would be able to purchase a much lower annuity when you wished to convert your pension fund to an annual income. If economic conditions are good when you reach retirement age and you are offered a reasonable annuity, you could choose to begin drawing your pension and then re-invest the money if you do not require the income, perhaps because you are continuing to work.
Remember that your pension scheme may have individual rules regarding the acceptable retirement age of its members, and you could face penalties if you do not abide by the regulations. You must begin drawing your pension at age seventy-five, at the latest. This is a legal requirement of every pension scheme to try to ensure no one pays into a scheme that from which they never benefit.
If you continue to work after State Pension Age, you will not be required to continue paying National Insurance contributions. These contributions are automatically deducted from your salary throughout your working life to cover the cost of paying you certain state benefits (see State Benefits) if and when you need them. When you reach retirement age you are entitled to receive a State Pension, and the contributions you have made throughout your working life will be taken into account: there is no need to make any further contributions. However, any retirement pensions including the State Pension are considered to be sources of taxable income.
