‘Unretirement’: How to protect your pension pot if you plan to work after reaching retirement age

Choosing to work beyond the age of 65 can help you top up your pension in the long run but can have implications for lump sums

When you could retire from work, would you really want to go back? A new workforce trend is seeing just that.

“Unretirement” refers to the growing number of people who reach the age of pension benefits, but choose to continue working or return to work.

Boomers, who were part of the post-second World War spike in births, are already headed for the golf course.

Indeed, people have been retiring earlier since 2020, mainly as a result of the pandemic, according to recruitment firm Randstad’s 2023 Workmonitor report.


But this trend is now swiftly reversing. Inflation, economic uncertainty and a growing ageing population are among the driving factors, according to the World Economic Forum.

For some over 65, unretiring is more than just a paycheck. Work is a way to keep connected and busy. Unretiring benefits businesses too. A drop in births since the 1970s means there are fewer workers to replace those exiting. A wave of unretirees could mitigate the global skills shortage.

Last year, almost half of Japanese firms relied on workers aged 70 and older to combat labour shortages, according to financial newspaper Nikkei. By 2030, almost 40 per cent of Japanese workers will be over 55. It will be 30 per cent of workers in Italy and Germany, according to consulting firm Bain & Company.

In Ireland, there were 106,000 people aged 65 and over in employment in the second quarter of 2022, working an average of 32 hours per week. The population aged 65 and over is projected to double to 1.6 million by 2051.

If you are retired and missing work, or working and worried about your retirement pot, here’s how to maximise your pension if you decide to unretire.

Returning as an employee

So you’ve said goodbye, they’ve bought you the carriage clock and a year later they’d love you to come back. Maybe there’s a job they can’t fill, you know the ropes, you miss the cut and thrust, so it’s a win-win. It’s important to consider your pension before you return, however, says Daniel Hardiman, a financial planning consultant with Hardiman Life & Pensions in Co Galway.

If you’ve already received a tax-free lump sum from your employer’s pension scheme, this may mean you can’t receive another tax-free lump sum from future pension contributions, says Hardiman.

“I recommend you request that your employer provides a pension facility called a personal retirement savings account (PRSA) where both you and your employer can contribute to the pension and you can still receive a 25 per cent lump sum from this new pension scheme, subject to Revenue limits, regardless of prior benefits,” he says.

Most occupational pension schemes have a mandatory retirement age of 65, which means you may not be eligible to join the regular workforce pension. If your employer does not provide you with access to an occupational pension scheme, or their scheme has restrictions, then they must provide you with a PRSA.

“You may have to factor this into your salary negotiations and you may have to set up your own private pension arrangement,” Hardiman advises.

Go independent

In some companies, once you turn 65, you’re out the door. Perhaps it’s their policy not to give a contract of employment to people over that age. You may be quite happy to get out of the staffer harness, preferring the freedom to unretire and return as an independent contractor.

This would give you the flexibility to work the days and hours you want and to choose projects.

If you decide to return as a contractor, set up an off-the-shelf company rather than operate as a sole trader, says Hardiman. This is inexpensive to do. So instead of receiving payslips, you invoice for your work and payment is made into your company’s bank account.

“The benefit is that you don’t have to pay income tax for work you have invoiced – you can retain some of your earnings in the company, or even better, the company can contribute unlimited amounts to a pension structure called a PRSA,” says Hardiman. “You only pay income tax on the salary you withdraw from the company.”

If for example, you invoice for €50,000 of consultancy work, this is paid to your company. “You may only need a salary of €20,000 because of other pension or rental income sources. The remaining €30,000 could be paid into a PRSA, boosting your retirement pot significantly over the next few years,” says Hardiman.

If you earned the same money as an employee or sole trader, there are more restrictions on what you can pay into a pension.

Benefits of returning to work

On retiring, most people will opt to take a 25 per cent tax-free lump sum with their remaining pension invested in a pot called an approved retirement fund (ARF).

The ARF is like a bank account. “You can decide how much income you take out every year, subject to a minimum withdrawal of 4 per cent of the fund’s value,” says Hardiman. “You have access to extra income, but the more you take out in the early years, the less you will have in later life,” says Hardiman.

The cost-of living crisis means retirees are making bigger withdrawals. “I’ve seen people increase the amount they originally intended to withdraw from their ARF to pay the bills,” says Hardiman. “These individuals could end up relying on the State pension as their only source of income in retirement.”

“If you unretire, you are only required to take an income equal to 4 per cent of the ARF fund value every year, thereby preserving more of your ARF for later in life,” says Hardiman.

“You can also contribute a portion of your earnings to a new pension, which will provide a further tax-free lump sum and increase the value of the ARF again at a later stage. This makes it less likely that your ARF will deplete to zero while you are still alive.”

You can continue to work, boosting your pension pot until you hit 75. After that, the Government will no longer allow you to contribute to a pension and will force you to take retirement benefits.

Public sector

Some long-serving public sector workers are lucky to be able to retire between 55 and 60 with a pension.

They can return to work in the private sector on a part-time basis if they have paid Class A PRSI, says Hardiman. (Most employees in Ireland have). They may be able to qualify for a pro-rata State contributory pension on top of their public sector pension, he says.

Those who joined the public sector after April 6th, 1995, have their pension integrated with the State pension. If they retire at 60, they get a supplementary pension instead of the State pension up to the age of 66 when the State pension kicks in.

If this worker goes back into employment, they will lose the supplementary pension, which could be worth about €13,000 a year and, says Hardiman – and they won’t improve their pension benefits.

Points to note

Unretiring after 66 won’t affect your State contributory pension. You’ll still be entitled to it, but you may have to pay income tax and USC on it, depending on your earnings, says Hardiman. And remember, you won’t improve your State contributory pension if you return to work after the age of 66 because you don’t pay PRSI after that age.

Those over 65 who return to work are entitled to the same tax credits, rates and bands as their younger colleagues, says Marian Ryan, consumer tax manager at Taxback.com.

This includes the employee and personal tax credit of €1,775, says Ryan. You are automatically granted the age tax credit the year you or your spouse or civil partner turns 65. That’s €245 for a single person or €490 for a jointly assessed couple.

There is an exemption from income tax allowing people aged 65 and over to receive income of up to €18,000 a year, tax-free if they are single or €36,000 as a couple. This applies to income from employment as well as State and private pensions.

An accountant can help you ferret out credits and reliefs you may be eligible for, including those awarded if you are caring for dependents.

In with the old

Done right, unretiring can be positive for individuals personally and financially. It’s a positive for companies, too. Older workers are more loyal to their employers and they have greater job satisfaction than younger colleagues, according to the Bain research. Interesting work is more important to older workers than a bumper salary.

The workplace of recent decades will surely be remembered for ping pong tables, endless snacks, on-site gyms and all manner of perks deployed in an employee engagement arms race to attract and retain graduates from the best universities.

Maybe hiring older workers was the answer all the time.

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