Pensions, Part Time Work and You
Are you one of the millions of UK workers who have worked exclusively part-time throughout your career? Or perhaps you have worked full-time in the past only to shift to part-time due to some sort of life circumstance change. You might even be the kind of person who plans to work full time until retirement age and then transition to part-time just to keep yourself active. In all three cases, there are things you need to know about pensions. We will start by saying that pensions and part-time work are not mutually exclusive.
Prior to 2001, it was possible for employers to treat their part-time workers differently than they did full-time employees. But that all changed with new legislation. Part-time workers are now entitled to be treated fairly in everything aspect of employment, including:
- pay rates
- career breaks
- pension investing and benefits
- promotion, transfer, and redundancy
- training and career development.
Any part-time worker who feels he or she is being discriminated against can file a claim with the appropriate agencies. There are channels available that address worker grievances in order to prevent discrimination based on employment status. Where pensions and the part-time worker concerned, we have listed below the most important things you need to know and understand.
Currently Working Part-Time
Auto-enrolment now requires virtually every UK employer to offer some sort of pension plan to all qualified workers no later than the end of 2018. Companies have different staging dates based on their size and turnover, so your employer may not have implemented a pension programme yet. When they do, you will be informed of your options.
The new regulations offer three circumstances under which an employee can participate in a workplace pension:
- Auto-Enrolment – Any employee over the age of 22 and earning more than £10,000 annually will be automatically enrolled in a company pension unless specifically choosing to opt out. This option usually applies to full-time workers or part-time workers earning substantial salaries.
- Opting In – Workers between the ages of 16 and 74 earning between £5,824 and £10,000 annually do have a right to opt in to a workplace pension despite not being eligible for auto-enrolment. Such workers will receive employer contributions upon joining the scheme.
- Entitled Workers – Workers earning less than £5,824 are considered entitled workers. They may not be eligible for auto-enrolment or opting in, but they can still ask to join a workplace pension. Employers who honour such requests are not required to contribute.
Almost every part-time worker will qualify under one of these three options. In the event you do not, or the possibility that your employer is not required to offer you a pension, you can still save for retirement by establishing your own stakeholder pension or SIPP.
Future Part-Time Work
You may be working full time right now with plans to transition to part-time in the future. At what point you make the transition will determine how your pension saving is affected. Pensions and part-time work are influenced by your age, your earnings, and how long you continue to work throughout the course of your lifetime.
Let us assume that you are in your 40s now and you plan to transition to part-time at the age of 55. You may choose to do this because you are already working on establishing a significant pension pot that you want to begin accessing as cash as soon as you are eligible to do so. This will enable you to enjoy the remaining 20 years of your life doing the sorts of things that you want to do.
In such a case, here is what you need to know:
- Pension Contributions – You will still be legally allowed to contribute to a workplace pension offered by your part-time employer as long as you are not attempting to draw from it; accessing your current pension, by way of any of the options you have, will eliminate your ability to continue contributing to it. Your state pension will continue accruing as long as you keep making National Insurance contributions.
- Part-Time Income – Any money you withdraw from your current pension will be added to your part-time income in the year that you earn it. All of those earnings will be subject to income tax at your marginal rate. Be sure to know what your total income will be in order to plan for your tax liabilities.
Should you continue working full-time until reaching retirement age, you will be able to put away a maximum amount in your current workplace pension. Transitioning to part-time employment allows the same kind of access as we previously explained. However, there is something additional you need to know.
Any part-time income you earn after retirement age is combined with your state pension and any personal pension payments to constitute your retirement income. All of this income is potentially taxable. There are certain tax-free allowances you can claim in retirement that could reduce your taxable income quite a bit. But those allowances are unlikely to mitigate your tax liabilities entirely.
It is possible to defer your state pension for a time if you would like; this may help reduce your tax liabilities while you continue working part-time. You can then start collecting your state pension at which point you decide you have had enough of part-time work. Alternatively, you could collect your state pension and leave your private pension alone. This strategy offers the added benefit of not losing your state pension should you pass earlier than expected.
Your Company Pension Scheme
So, what to do with your current company pension should you decide to transition to part-time work? If you continue with the same employer, you need do nothing. Your employer will inform you of your options in terms of whether you still qualify for auto-enrolment, opting in, or contributing as an entitled worker. You can always access the money as a cash lump sum or transfer it to another workplace pension should you not find the options your employer offers you favourable.
In cases of leaving a current employer in favour of a new employer, the last two choices we previously mentioned are options. You can take your workplace pension as a lump sum payment beginning at the age of 55 with minimum tax liabilities. The first 25% is tax-free while the remaining 75% is taxed at your marginal rate. A second option is to transfer the money into a personal pension or the scheme offered by your new employer.
A third option is to simply leave the money alone until you need it. This is essentially freezing your pension inasmuch as neither you nor the employer will be contributing to it. But it will continue to earn alongside the pots of other scheme members.
Pensions and part-time work are not exclusive. If you have been considering the transition to part-time work but have decided not to do so out of pension worries, there may be nothing to worry about. You should probably consult with a financial advisor who is experienced in this sort of thing. A qualified advisor can explain what your best pension strategies are for as long as you continue working. It may be that working part-time ends up being one of the best decisions you have ever made. It could also be that the reality of pensions and part-time work means you will have to continue working full-time for the foreseeable future.
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