Individuals in the UK who have reached 66 could be entitled to claim their state pension even while they continue to work. However, it’s not without its complex side notes.
There are crucial factors to consider, such as cutting National Insurance contributions, the possibility of higher income tax, and making a choice about whether to delay taking the state pension, as fresh guidance from the DWP laid out.
Driven by a successful Age UK campaign, in 2011 the obligatory Default Retirement Age was scrapped. Under this old rule, employers had the power to force employees to retire at 65.
Despite the change, some job sectors have retained the right to enforce retirement. The DWP pointed out: “In some cases an employer can force you to retire at a certain age – known as ‘compulsory retirement age’. If they do this they must give a good reason why.”
Acceptable reasons listed include having job roles which demand certain levels of physical capabilites like construction work, or industries where specific laws dictate you cannot work beyond a certain age, such as within the fire service.
If you feel you’ve been unlawfully treated regarding retirement or seeking employment post-state pension age, the DWP has emphasised the extensive rights employees over 66 have. If you believe you have been discriminated based on your age, you could lodge a claim with the employment tribunal and the DWP also highlighted there’s no requirement to disclose your date of birth when applying for a new job.
If you choose not to retire at the state pension age, you can ask for more flexible or part-time work, but the DWP cautions that your employer has “the right to reject your request”.
You can continue to receive your state pension while working, but this could lead to significant tax liabilities.
Once you reach state pension age, you’re exempt from National Insurance, which will increase your earnings from work. Adding state pension payments to this higher income could easily push you into a higher income tax bracket, resulting in a larger tax bill.
Currently, you can earn up to £12,570 a year without paying any income tax. At the basic rate, you’ll be taxed at 20% on everything you earn over this amount until £50,270 when the higher rate of 40% applies.
Once your earnings hit £125,140 per year, you’ll be taxed at an additional rate of 45% on every pound beyond this threshold. State pension, private pensions, employment earnings and even interest on savings over certain amounts are combined for income tax.
To halt your National Insurance contributions, you might need to provide proof of age to your employer, such as a birth certificate or passport. If you’d rather not share these documents with your employer, you can request a letter from HMRC instead.
This letter will confirm that you’ve reached state pension age and no longer need to pay National Insurance. To obtain this letter, you’ll need to write to HMRC explaining why you don’t want your employer to see your birth certificate or passport.
You also have the option to defer your state pension payments until you actually retire, which could result in a larger payment when you eventually claim it, although this could be subject to tax depending on your income.
Typically, just before you reach state pension age, you receive a DWP letter explaining how to claim it.
However, if you wish to defer your payments, you don’t need to do anything as it will be automatically deferred until you make the claim.
