HMRC is encouraging state pensioners to learn more about their tax obligations
People nearing state pension age who are considering whether to continue working have been given fresh guidance by HMRC on their potential tax liabilities should they decide to remain in employment.
Tackling a number of common questions, the department outlined how the rules change if you access your pension while still drawing a salary, and when National Insurance deductions will stop from your pay packet, which can differ depending on your working situation.
In a short clip shared on X, an HMRC spokesperson reassured pensioners that they are perfectly entitled to keep working even if they begin receiving the state pension, a private pension, a workplace pension, or any combination of the three.
They stated: “Many people choose to do this and the tax rules are straightforward.”
It is well established that National Insurance contributions stop once you hit state pension age, which is currently increasing from 66 to 67. However, the precise point at which payments cease may also depend on your employment status.
The clip explained: “Employed people stop automatically. Self-employed people stop from the next tax year.”
For those in salaried employment, you may be required to provide your employer with proof of your age to confirm when they should stop deducting National Insurance from your pay. Acceptable documents could include your passport, birth certificate or state pension award letter.
Self-employed workers must provide their date of birth on tax returns to enable HMRC to stop payments at the correct time. It’s crucial to understand that stopping National Insurance contributions doesn’t signal the end of your HMRC responsibilities. People who have reached state pension age must still pay income tax.
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
For those continuing to work past state pension age, income tax will usually be deducted through PAYE and calculated according to your tax code. This may change if you’re receiving a workplace or private pension as well as wages.
HMRC has introduced a campaign urging people to become “Tax Confident”, especially during retirement. It states: “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.”
Research from the Centre for Ageing Better, released earlier this year, shows approximately one in 25 workers are now aged over 65, with this number increasing annually.
The research also showed that those continuing to work past state pension age are earning more than in previous years. Employees aged 65 and over were taking home approximately half the median weekly wage of those aged 35 to 49 – a significant increase from just 40% a decade earlier.
