Rigid retirement dates are a thing of the past for growing numbers of workers who are choosing to enter into new - and enjoyable - work patterns as they age.
Planning for a century of life is becoming the norm. In 2043 in the UK, 21% of newborn boys and 26% of girls are expected to live to at least 100, according to the Office for National Statistics. Today women aged 65 can expect to live another 22 years, and 20 years for men.
Based on life expectancy trends, retiring at 55 and living to, say, 85, means paying for a 30 year retirement, requiring a large pot or very modest expectations. Increasingly those approaching traditional retirement age from formal employment are taking a different route.
Over-60s are the fastest growing self-employed age group, according to figures from the Association of Independent Professionals and the Self-Employed (IPSE), jumping 73% since 2008 and by 11% in 2019 alone.
Over-60s are the fastest growing self-employed age group
Several factors are driving the surge of older entrepreneurs, from longevity, to the increase in women’s State Pension age, and the need to supplement small pensions. The government’s most recent data (from 2019/18) puts pensioners’ average income at £320 a week, after direct taxes and housing costs. This is around £16,640 a year. Clearly some people would want, or need, more to live on than that.
But money is not the only motivation for retirees seeking a second, or even third chapter to their work lives. IPSE also did a survey of the motivations for people becoming entrepreneurs and their experiences of it. It found happiness in self-employment increased with age, with 66% of 16-29 year olds reporting high net happiness but 84% of the 60-plus group.
Those in the 60-plus age bracket were also much less likely to say that self-employment had been more challenging than expected, at only 34%. While a third of freelancers said being self-employed made it hard to find time for social and leisure activities, only 23% of those in the 60-plus age bracket had that trouble.
These survey results are from January - evidence suggests freelancers and the self-employed have been among the hardest hit economically by coronavirus, and the least likely to benefit from government support schemes. But the pre-crisis sentiment among older self-employed people shows strong appetite among retirees to pursue meaningful work in a more flexible retirement.
Coronavirus is creating shifts in employment. Between the first and second quarter of the year, 6% of people changed occupation, according to the ONS, a figure expected to rise once the government’s furlough scheme ends in October. Over half (53%) were men, 27% were aged 35 to 49 years - and almost a third were aged 50 to 64 years.
For workers who can adapt to the changing times, opportunities are emerging as temporary staff become increasingly important to businesses trying to recover from the effects of coronavirus. The Recruitment and Employment Confederation found in July employers’ hiring intentions for agency staff in the next three months hit the highest level since the end of 2019.
Short-term work may especially suit semi-retired people who already have their basic income needs met by pensions, or who have been hit by lower investment income due to stock market falls earlier this year and are seeking a bit of a top up.
Short-term work may especially suit semi-retired people who already have their basic income needs met by pensions
It’s worth doing a bit of financial planning before switching from a more traditional, pension income-only retirement, to one with more earning options, as it could push you into a higher tax bracket, or limit the amount you can save into your pension.
Once a pension saver who is still working starts taking retirement income, the money purchase annual allowance (MPAA) kicks in. It means you can only contribute £4,000 per year to your pension (including tax relief). Contributions above this limit are subject to income tax, making it hard to rebuild your pension pot.
Coronavirus is making many of us reconsider the sort of life we want to lead, and face new employment and income realities. Freelance and self-employed earnings can be volatile, but offer opportunities to continue pension contributions to gain valuable tax-relief, and to build up a rainy day fund (of three to six months’ expenditure), to dip into when stock markets are falling and it makes sense to pause pension withdrawals.
This information should not be regarded as financial advice.