The concept of retirement is thought to date back to the Roman Empire, when soldiers were paid an income to support themselves in old age. Yet, it wasn’t until the 1800s when support for retirees became more widespread.
In 1881, the first chancellor of Germany, Otto Von Bismarck proposed a radical idea: government-funded support for elderly people so they wouldn’t need to work. As a result, Germany became the first nation to effectively introduce a State Pension in 1889.
Other countries followed suit, including the UK, with the Old Age Pensions Act in 1908. Occupational pensions also started to grow in popularity in the early part of the 20th century, particularly after the 1921 Finance Act introduced tax relief on pension contributions.
Since then, retiring has been an eventual goal for many working people. However, some people don’t plan to retire at all.
13% of non-retired Brits plan to continue working indefinitely
While retirement is still a key goal for many, there is a growing number of people taking a different approach to later life.
Indeed, according to Canada Life, 13% of non-retired Brits said they never plan to retire. This might be because they’re concerned about their ability to afford retirement, especially during the cost of living crisis. Meanwhile, others choose to continue working because they enjoy it and their job gives them a sense of purpose.
If you fall into this category and don’t plan to retire, your financial plan might look very different. This is because you have different goals and you may be earning an income for longer. Yet, you could still face certain financial challenges and it’s useful to be prepared.
Read on to learn three crucial factors to consider if you don’t plan to retire.
1. You may need to reframe your financial goals
Many people build their financial plans around their aspirations for retirement. They aim to contribute to their pensions, investments and other savings until they have accumulated enough wealth to fund their desired lifestyle. They’ll then retire and live off their savings without having to work.
However, if you don’t plan to retire, you might be less clear about your financial plan because you don’t have a retirement savings goal to aim for.
In this instance, it may be useful to reframe your goal as “financial independence”, meaning that you can support yourself with your savings alone. In short, you don’t need to work, but you choose to.
This could be a useful goal to aim for as you may lose your job or be forced to retire due to ill health. By achieving financial independence, you can ensure that you and your family can maintain your lifestyle if you do eventually have to give up work.
Being financially independent also allows you to fund your lifestyle if you later change your mind and decide that you want to retire.
Additionally, you might have other goals such as travelling or financially supporting loved ones that remain the same whether you want to retire or not.
As such, once you reframe your goals, you may realise that it’s important to build wealth for the future, even if you plan to continue working.
2. The tax implications of accessing your pensions
Even though you are working, you might decide to access your pensions to supplement your income or fund larger financial goals such as paying for a child’s wedding or purchasing a holiday home. However, it’s important to consider the tax implications of accessing your pensions while continuing to work and make contributions.
In the 2024/25 tax year, you can contribute up to £60,000, or 100% of your annual earnings, if lower, to your pensions without triggering an additional tax charge. This is known as your “Annual Allowance”.
Yet, if you flexibly access a defined contribution (DC) pension, you will trigger the Money Purchase Annual Allowance (MPAA). This effectively reduces your Annual Allowance to £10,000.
This could affect you if you plan to continue working while also drawing from your pensions, and may prevent you from making as many tax-efficient contributions in the future.
Additionally, you might need to consider the Income Tax you will pay when drawing from your pension. In 2024/25, you can take the first 25% of your pension tax-free, up to a maximum of £268,275 – your “Lump Sum Allowance” (LSA).
Any further pension income that exceeds your Personal Allowance of £12,570 in 2024/25 will be taxed at your marginal rate of Income Tax. If you’re working full-time and are a higher-rate taxpayer, this could mean that you pay 40% tax on all pension withdrawals after your tax-free lump sum.
Consequently, it may be beneficial to seek professional advice and understand the tax implications of accessing your pensions. You might also want to avoid drawing flexibly from your DC pensions for as long as possible, so you don’t trigger the MPAA and can make more tax-efficient contributions in the future.
3. The potential for health problems in the future
While you may not plan to retire, you might not have a choice if you fall ill. As life expectancies increase, more people find themselves unable to work and in need of long-term care.
Indeed, according to Community Care, 835,335 people used council-arranged adult social care in the UK in 2022/23 – an increase of 2.1% on the previous year.
The cost of long-term care is rising rapidly. Carehome.co.uk reports that the average residential care home in the UK costs £1,160 a week. This increases to £1,410 if you require nursing care.
While you may receive some government support to pay for care, you are normally only eligible for financial assistance once your total assets – including your home – fall below £23,250 (rising to £100,000 in October 2025).
You may need to plan for this expense because, even if you don’t plan to retire, you might still fall ill and require care. If you’re unable to pay for it, you may be forced to sell your home to fund care until you fall below the threshold for government support.
Setting aside wealth earlier in life could help you manage this expense. Additionally, you may want to invest in protection such as critical illness cover, which pays a lump sum if you’re diagnosed with a qualifying illness and could help you pay for care.
Financial planning is crucial, even if you don’t want to retire
Some people feel that they don’t need to build wealth for the future if they don’t plan to retire because they’ll still be earning an income. However, your financial plan is still crucial because it protects you against unexpected events outside of your control.
Seeking professional advice could also help you draw from your savings more tax-efficiently, meaning you retain more of your wealth to pass to your loved ones.
Get in touch
If you plan to continue working in later life, we can help you develop a suitable financial plan.
Please give us a call on 01276 855717 or email info@braywealth.com today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
HM Revenue and Customs’ practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.
Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.
Approved by the Openwork Partnership on 04/07/2024
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