Contrary to popular belief, you can earn as much as you like while you claim your state pension.
Your state pension start date will be locked in at a certain date. A few weeks before this date, the government will write to you asking if you want to start claiming your state pension.
You can choose to start receiving your state pension even if you’re still working. State pension payments are based on your work history. Future work after you’ve reached state pension age does not affect your state pension payments.
So, whether you’re looking to continue full time work, or do some part-time work and semi-retire, you can do so and get your state pension as normal.
How much tax will I pay on my earnings and state pension?
If you’re working and getting your state pension at the same time, then think of this like being paid two salaries.
Earnings from a job and state pension payments are both subject to income tax each tax year. You will also have a personal allowance – the amount you can earn tax free – when you get your state pension.
Here’s a working example of the tax paid for somebody earning while claiming their state pension.
Joan is entitled to her state pension from age 66. But she has decided she doesn’t want to stop working just yet.
Joan’s state pension for the current tax year = £10,000
Joan’s employment earnings for the current tax year = £35,000
Joan’s personal allowance for the current tax year = £12,570
Joan’s total income for tax calculations is £45,000. This makes her a basic rate (20%) taxpayer. She can earn £12,570 of this £45,000 tax free. The rest will be subject to 20% income tax.
Once you’ve reached state pension age, any income from employment or state pension payments is not subject to national insurance. For Joan, this is a 12% tax saving compared to the tax she would have paid before her state pension payments started.
Do you pay National Insurance on a pension?
No, you do not pay National Insurance on your pension. This includes the state pension, personal pension, workplace pension or annuities.
You only pay National Insurance contributions on income earned through employment or self-employment until you reach state pension age.
Once you reach State Pension age – you stop paying National Insurance even if you continue to work. The exception being if you're self-employed and pay Class 4 contributions. You stop paying Class 4 contributions at the end of the tax year in which you reach State Pension age.
How is tax collected from my state pension and earnings?
If your total taxable income, including your state pension, is greater than your allowances and reliefs, you will have to pay tax on the income that exceeds your allowances.
If you have a job with an employer and claim the state pension, HMRC will issue you a tax code. This means HMRC should be able to deduct tax for your salary and state pension through the PAYE system.
Make sure you keep a record of all your state pension payments in case you think you’re not paying the correct amount of tax.
If you’re self employed and claiming state pension, you will need to complete a Self Assessment tax return each tax year to pay the tax you owe.
Will my state pension be reduced if I continue working?
No, your state pension has nothing to do with any other income you have. It is fixed at a certain amount, with yearly increases based on the triple lock rule.
Do I need to take my state pension if I’m still working?
If you’re happy to continue working, you may not need the money from your state pension straight away.
You have the option of deferring your state pension which comes with some benefits.
Remember, reaching state pension age doesn’t mean you have to automatically start taking your payments or automatically must stop working. Your employer can’t force you to retire, except in some physically demanding jobs like the Fire service.
What age do you stop paying income tax?
Age has nothing to do with when you stop paying income tax. If you have earnings above the personal allowance, they will be subject to income tax, whatever age you are. This includes earnings from employment, private pensions and the state pension.
