People over the state pension age have different tax liabilities
People nearing state pension age and debating whether to continue working have been given some more information by HMRC about what their tax liabilities might look like if they stay in the workplace.
Clearing up some common questions, the department revealed how the rules change if withdraw your pension while earning an income and when your National Insurance contributions will stop being taken from your paycheque, which may differ depending on what type of work you do.
In a short video on X, an HMRC spokesperson assured pensioners they can continue working even if they start claiming the state pension, a private pension, a workplace pension or even a combination of these.
They noted: “Many people choose to do this and the tax rules are straightforward.”
Most people know that you stop paying National Insurance contributions once you reach state pension age, which is currently increasing from 66 to 67. But, precisely when you stop paying may also depend on what type of work you do.
The video explained: “Employed people stop automatically. Self-employed people stop from the next tax year.”
If you work for someone, you may need to provide your employer with proof of your age to confirm when they need to stop taking National Insurance from your wages. This can include your passport, birth certificate or state pension award letter.
If you are self-employed, you’ll need to put your date of birth on your tax return so HMRC can ensure you can stop paying.
It’s worth noting that just because your National Insurance contributions stop doesn’t mean you no longer have to pay HMRC. Even people over the state pension age still have to pay income tax.
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Income tax is charged on your total yearly income which can include:
- wages
- if you’re self-employed
- State Pension
- workplace or private pensions
- interest you get from savings
- investments
- rented property
If you are still employed past state pension age, income tax will usually be collected through PAYE and decided by your tax code. This may change if you are claiming a workplace or private pension on top of your wages.
HMRC has launched a campaign encouraging people to get “Tax Confident”, particularly in retirement. It advises: “If you’re claiming a State Pension and are still working, keep an eye on your payslips to make sure the right amount of tax is being taken.”
Around one in 25 people in the workforce are currently over the age of 65, according to analysis by the Centre for Ageing Better published earlier this year. With this number increasing year on year.
The analysis also found people working past state pension age are earning more income than in previous years. These 65+ workers earned on average around half the median weekly pay for workers aged 35 to 49. 10 years ago, workers over 65 were earning just 40%.
