Retirees forced to go back to work as cost of living leaves thousands facing ‘painful’ decisions

Nearly a quarter of retirees are forced to postpone retirement, take only partial retirement or return to work because of the higher cost of living, research shows.

The poor performance of many pension pots, but also sky-high energy bills and food prices is increasing at a record pacemany retirees cannot afford to stop working.

One in 10 (9.9 percent) say they will have to postpone retirement because of the cost-of-living crisis, according to an analysis by investment firm AJ Bell.

Ten percent of retirees now expect to take part-time jobs to get the pension they want, while 3.3 percent return to full-time work.

More than one in 10 (10.9 percent) of pension savers expect to be poorer than expected when they eventually finish working.

Others are forced to plunder their retirement pot before retirement to get some emergency money.

Tom Selby, AJ Bell’s head of pension policy, said: ‘For those already retired or about to retire, the economic turbulence is already forcing many to rethink how and when they retire.

“While these decisions will be painful for some – especially when it comes to postponing retirement and working longer – it is encouraging that so many people have a clear vision of their approach to generating income in their later years.”

Meanwhile, retirement savers are pulling more money out of retirement to try to stay afloat as prices rise.

Figures from HM Revenue & Customs show £3.6bn in flexible pension withdrawals between 1 April and 30 June 2022 – an increase of 23 per cent compared to the same period in 2021.

Selby added: “Among those aged 55 and over who are still working, we will inevitably see more people using their retirement pot ahead of schedule, either to cover their own increased living expenses or to help a loved one who is in financial difficulties.’

Not only does this run the risk of depleting pension pots before retirement, it also leads to pension pot dippers falling into a tax trap.

This is because the annual cash purchase allowance (MPAA) reduces the amount that can be saved tax-free from £40,000 to £4,000. As if that weren’t enough, it also prevents retirement savers from carrying over unused benefits from the previous three tax years.

About half of pension savers have had to reconsider their plans due to deteriorating economic conditions in the UK. According to AJ Bell, nearly one in five (19.1 percent) have changed investment strategies to try to maximize their retirement savings.

>> Watch out for tax and pension pitfalls when you return to work later in life

Pensioners miss out on benefits worth £1,100 a year

Many pensioners can increase their pension income with government help, but most who claim never do – and some lose out on more than £1,000 a year.

In fact, according to retirement company Just Group, six in ten (62 percent) of retired households eligible for benefits claim nothing at all.

The main benefits that pensioners are not entitled to are Pension Credit, which supplements the state pension, and Municipal Tax Reduction, which can give a discount of up to 100 percent.

One in four (24 per cent) pensioners asked for help but got less than they should, missing out on average an extra £660 a year, Just Group said.

Overall, four in ten (40 per cent) of those who lost income were entitled to benefits worth at least £1,000 a year.

The highest amount of additional unclaimed income found was £79.76 per week for an octogenarian from Hertfordshire not receiving benefits.

Just Group advisers found he was eligible for a £51.86 a week pension credit and £27.90 a week council tax relief, amounting to £4,147 a year in additional income.

Just Group Director Stephen Lowe said: ‘Each year the numbers consistently show the huge amounts of benefits that go unclaimed but which would make a huge difference to those struggling, especially with the added pressure of rising cost of living .’

>> Read our cost of living survival guide for retirement savers