Today, many people reach the default retirement age and decide that they aren’t ready to quit work altogether. Although they may retire and access their pension scheme, they may want to carry on “keeping their hand in” and doing a part-time job to keep themselves busy and bring in a little extra income on top of their pension to supplement their financial status.
If you decide to do this, you may be worried that the number of hours you choose to work after retiring will impact your pension income. But the good news is that there are only a handful of cases where this will happen.
At one time, there was quite a clear divide between those who had retired and were claiming their pension and those who were working and had yet to receive their pension. In the modern world though, the lines have become blurred. A lot more people today are combining their pension with work so they can enjoy good mental health along with a good quality of life.
Part-time hours and pensions
Most private pensions and the state pension are more flexible than most people imagine. If you wish, you can defer claiming your state pension as well as your workplace or defined contribution personal pensions for as long as you like. Alternatively, you could claim them but carry on in work. Deferring your pensions gives them time for more growth, so you’ll have more money to support you in your future retirement when you finally choose to quit work permanently.
If you choose to take a part time job, you should be given the opportunity to join the business pension. Also, if you choose to reduce the amount of time you work with your existing employers, you should still be entitled to contribute to the business pension even when switching to part time employment.
What about my national insurance contributions?
The government has set an annual Personal Allowance limit on the amount anyone can earn without paying income tax. If you exceed this tax-free amount, you’ll still have to pay tax on the excess, that’s even if you’re over the age of retirement. On the upside, though, you’ll no longer need to pay national insurance contributions after reaching State Pension Age. This applies even if you’re continuing to work. You will need to pay NI contributions on your income if you’re under state pension age and claiming your private pension though.
Giving your employer some proof of your age is a good idea since mistakes can be made. You can obtain an Age Exemption Certificate from HMRC, which authorises your employer not to take National Insurance from your pay.
What if I reach retirement age and claim my workplace pension – can I continue working?
If you have a workplace pension or private pension, you will usually have no problem claiming your pension and also doing paid employment on the side. The only circumstance in which a situation could arise here is if you’re claiming a workplace pension and are keen to return to work for your old employer.
In that case, your employer or the pension scheme you’re in may have rules in place about whether or not you can work for your old employer while claiming your pension from them. You’ll therefore need to take advice and carry out checks with not only your old employer but also your pension provider since rules differ between schemes. If you wish to return to work with a different employer, it shouldn’t affect your ability to receive your pension at all.
If I reach state pension age how will working affect my payments?
Although state pension age is generally the official retirement age, that doesn’t mean you actually have to retire! The law has changed, and now employers cannot force you to retire simply because you’ve reached state pension age. This means you can carry on working until you reach the retirement age that’s right for you, as long as your employer is happy for you to continue working for them.
It also means that once you reach state pension age, you can claim your state pension and carry on in employment simultaneously, whether full time or part-time working. This is because you no longer need to be retired to receive your state pension.
There were legal rules in place until the 1990s, which stated that anyone who earned over a specified amount once they had reached state pension age would have their state pension reduced. That law, though, has been scrapped in recent years. This means you can enjoy the benefit of receiving your pension while receiving a regular income from employment if you wish to do so.
How does working and receiving my pension affect my tax?
If you decide not to retire, carry on working beyond retirement age and draw on your private pension or company pension while you work part-time, you’ll need to bear in mind the tax implications of this. Both your pension and wage total income will be subject to income tax.
You have an annual personal allowance of income that you’re allowed to earn tax-free. At present, this is £12,570 per year. Your pension will be added to the total income you receive from your wages, and any amount that exceeds that allowance will then be taxed.
Will working part-time in retirement affect my benefits?
If you’re in retirement or are planning to retire and draw on your pension but are also doing part time work (or even full-time work), it could impact your means-tested benefits. These include council tax benefits, housing benefits and pension credits.
If you continue working beyond the normal retirement age, the income you receive from your wages will be added to your pension, and this could, in turn, reduce the amount of benefits you can receive. This will only be because your income is higher, not because you’re doing a set amount of hours in your job.
Some benefits exist in which the number of working hours employees do impacts on the benefit (for example, working tax credit), but this isn’t likely to be relevant for you.
Seeking professional financial advice
If you’re considering trying to earn a little more money to support your lifestyle after you retire, you’ll be pleased to know that there’s no minimum or the maximum number of hours you’re permitted to do for your employers without affecting your pension. It would be wise to seek some support and professional financial advice to make sure you understand your position clearly. This will ensure you can maximise your income without having to pay more in tax than you need to.
References:
https://www.gov.uk/working-retirement-pension-age
https://www.saga.co.uk/magazine/money/work/careers/the-rules-around-working-part-time-in-retirement
https://www.unbiased.co.uk/life/pensions-retirement/retire-gradually