If you could leave your job, would you really want to go back? New workforce trends are seeing just that.
‘Never-retired’ refers to the growing number of people who choose to continue working or return to work after reaching pension age.
Baby boomers, who joined the post-World War II birth surge, are already heading to the golf course.
In fact, according to recruitment firm Randstad’s 2023 Work Monitor Report, more people have taken early retirement since 2020, largely due to the pandemic.
However, this trend is now rapidly reversing. Inflation, economic uncertainty and an aging population are contributing factors, according to the World Economic Forum.
For some people over 65, not retiring is about more than just a paycheck. Work is a way to stay connected and busy. Not resigning also benefits the company. The decline in births since the 1970s means there are fewer workers to replace retirees. A wave of retirees could ease the global skills shortage.
Last year, nearly half of Japanese companies relied on employees over 70 to deal with labor shortages, according to the Nikkei business newspaper. By 2030, nearly 40% of Japan’s workers will be over 55, according to consulting firm Bain & Company. It will be 30% of Italian and German workers.
In Ireland, 106,000 people aged 65 and over were employed in Q2 2022, working an average of 32 hours a week. The population aged 65 and over is predicted to double by 2051 to 1.6 million people.
If you’re retired and out of work, or working and worried about your retirement benefits, here’s how to make the most of your pension if you decide to come out of retirement.
Returning as an employee
So you say goodbye, they buy you a carriage watch, and a year later they want you back. Maybe there’s a job they can’t fill, you know the tricks and you’re missing the cuts and thrusts, so it’s a win-win. But Daniel Hardiman, a financial planning consultant at Hardiman Life & Pensions in County Galway, says it’s important to consider your pension before returning home.
Hardiman says if you’ve already received a tax-free lump sum from your employer’s pension plan, you may not be able to receive another tax-free lump sum from future pension contributions.
“We recommend that you ask your employer to offer you a pension scheme called a Personal Retirement Savings Account (PRSA), where both you and your employer can contribute to your pension and you will continue to receive 25% from this new pension scheme. You can receive a percentage lump sum and you have to comply with income limits, regardless of your previous profits,” he says.
Most occupational pension plans have a retirement age of 65, so you may not be eligible for a regular workers’ pension. If your employer does not provide you with access to an occupational pension scheme, or if there are restrictions on that scheme, your employer will need to provide you with her PRSA.
“You may need to factor this into your salary negotiations, or you may need to set up your own private pension plan,” Hardiman advises.
go on one’s own
Some companies require employees to retire at the age of 65. Perhaps the company’s policy is not to enter into employment contracts with people over that age. You may prefer the freedom to break free from the shackles of your staff, come out of retirement and return as an independent contractor.
This gives you the flexibility to work the days and times you want and choose your projects.
If you decide to go back as a contractor, Hardiman says you should form a ready-made company rather than operating as a sole trader. This can be done at low cost. So instead of receiving a pay stub, you issue an invoice for your work and the payment goes into your company’s bank account.
“The advantage is that you don’t have to pay income tax on the work you claim. You can keep some of your income with the company. Even better, the company makes unlimited contributions to a pension scheme called PRSA. “You can,” Hardiman said. “You only pay income tax on the salary you withdraw from your company.”
For example, if you issue an invoice for 50,000 euros for consulting work, this will be paid to the company. “With other pension and rental income sources, he may only need a salary of €20,000. The rest of his €30,000 will be paid into his PRSA, significantly increasing his retirement savings over the next few years. It’s possible,” Hardiman said.
If you earn the same income as a company employee or self-employed person, there are more restrictions on how much you can pay out as a pension.
Benefits of returning to work
When most people retire, they choose to invest the remainder of their pension in a pot called an Authorized Retirement Fund (ARF) and receive a 25% tax-free lump sum.
ARF is like a bank account. “You can decide how much income you want to withdraw each year, subject to a minimum withdrawal of 4 percent of the fund’s value,” Hardiman says. “You can have extra income, but the more you earn when you’re young, the less you’ll have later in life,” Hardiman says.
The cost of living crisis means retirees are withdrawing large amounts of money. “I’ve seen people increase the amount they originally planned to take out of their ARF to pay their bills,” Hardiman said. “These people may end up relying on the state pension as their only source of income in retirement.”
“If you take out retirement, you only need to receive income equal to 4 percent of the value of your ARF fund each year. This allows you to save more of your ARF for retirement,” Hardiman said. say.
“You can also contribute part of your income to a new pension, which provides a further tax-free lump sum and increases the value of your ARF again at a later stage. is less likely to be zero.”
You can continue to work and increase your pension until you are 75 years old. After you turn 75, the government will no longer allow you to contribute to your pension and you will be forced to collect retirement benefits.
Public institution
Some civil servants who have worked for many years are lucky enough to receive a pension and retire by the age of 55 to 60.
Mr Hardiman said paying Class A PRSI would allow him to return to work in the private sector part-time. (Most employees in Ireland do this). They may be eligible for a pro-rata state-funded pension on top of their public sector pension, he says.
For those who became civil servants after April 6, 1995, their pension will be integrated with the national pension. If you retire at the age of 60, you can receive additional pension instead of the national pension until age 66, when the national pension begins to be paid.
If the worker goes back to work, Mr Hardiman said, he would lose an additional pension worth around €13,000 a year and his pension benefits would not improve.
Notes
If you do not retire after age 66, your state-contributed pension will not be affected. You’re still entitled to it, but you may have to pay income tax and USC based on your income, Hardiman says. Also remember that if he returns to work after the age of 66, his state contribution pension will not be increased, as from that age he will not pay PRSI.
People over 65 who return to work are entitled to the same tax credits, rates and credits as their younger colleagues, says sales tax manager Marian Ryan. Taxback.com.
This includes employee and personal tax credits of €1,775, says Ryan. Age tax credits are automatically granted in the year you, your spouse or civil partner reach her 65th birthday. This is €245 for a single person and €490 for a married couple taxed jointly.
There is an income tax exemption system that allows people over 65 to earn up to 18,000 euros per year, tax-free for singles and 36,000 euros for married couples. This applies not only to income from employment, but also to state and personal pensions.
Your accountant can help you find out what credits and relief you may be eligible for, including those given to you if you care for dependents.
with the old one
Done correctly, not retiring can have personal and financial benefits. It’s also a plus for companies. Bain research shows that older workers are more loyal to their employers and more satisfied with their jobs than their younger colleagues. For older workers, interesting work is more important than a high salary.
Workplaces in recent decades have surely become more popular with ping pong tables, endless snacks, on-site gyms, and all sorts of perks deployed in an employee engagement arms race to attract and retain graduates from the best universities. It will be memorable.
Perhaps hiring older workers was always the answer.
inquiry
If you have any questions about personal finance, please contact us at OnTheMoney@irishtimes.com. If you missed last week’s newsletter, you can read it here.
