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Working in retirement

Our guide to working beyond state pension age rounds up the tax rules to bear in mind and the implications of delaying your pension.  

In this article
Can I still work after I reach pension age? Do I pay National Insurance in retirement?
Can I draw a pension while I'm still working? Starting your own business when you retire

Can I still work after I reach pension age?

The number of people who work beyond state pension age - which is currently 66 - is around 1.5 million.

Some keep working because they need the money, others because they enjoy their role and don’t want to stop abruptly.

Although most people retire when they reach state pension age, default retirement age in the UK was ended in 2011, so you no longer have to stop working at 65 if you don’t want to.

Some firms can still insist on a cut-off age but they have to be able to justify this objectively. Jobs that require a high level of physical fitness may fall into this category. Most employers will now discuss retirement as part of an annual review and reach an individual agreement with each employee. 

Many people who carry on working for a few extra years switch from full-time to part-time. Two thirds of those beyond state pension work on this basis. 


Do I pay National Insurance in retirement?

Once you reach state pension age, you are no longer obliged to pay National Insurance.

If you carry on working for an employer, you should provide them with proof of your age (birth certificate, passport or certificate of age exception) and check that National Insurance contributions are no longer deducted from your pay. 

If you are self-employed you can also stop paying National Insurance. You may still have some Class 4 contributions to make in the first year you turn 66.

Can I draw a pension while I'm still working?

State pension

Once you reach state pension age, you can begin to receive your state pension even though you carry on working. 

It will be counted as income and is taxable in the same way as your earnings (and any savings income you receive). 

Confusingly, it is paid gross (ie without tax deducted), and any tax due is collected from other sources (either via PAYE or through a self-assessment tax return).

If you carry on working past state pension age, you may decide to put off claiming state pension until later. 

To compensate for postponing your pension, you can get a higher amount of state pension when you eventually claim it. 

Our guide to deferring your state pension explains how.

Private pension

It is also possible to receive a private pension while you carry on working - the earliest you can access your pensions is age 55. 

The only restriction is that, if you are still saving for retirement you can’t pay into the same scheme you are receiving your pension from. 

Private pension is also taxable income, normally paid with tax deducted via PAYE.

Deferring a final salary, or defined benefit, pension is less financially advantageous than deferring the state pension, in that your pension may not increase to compensate you for the years you aren't claiming it. 

Your pension scheme's rules govern the point at which you stop accruing further pension and schemes apply a pension age at which point you are expected to start claiming. 

If you are in a defined contribution scheme, delaying when you claim means that you leave it invested for longer, meaning you could have a bigger pension pot when you come to retire. 

It also means you can continue to save as much as £40,000 a year into a pension and earn tax relief. Once you start drawing on your pension, this could fall to just £4,000.

You can find out more in our guide to the pensions annual allowance. 

Starting your own business when you retire

Retirement offers many people the chance to stop working for an employer and set up a business of their own.

Around 32% of those working beyond state pension age are self-employed, compared with just 13% of younger workers.

The simplest form of self-employment is to be a sole trader. If your business is more complex or substantial you might establish a partnership or form a limited company.

Running a business can be extremely rewarding but it calls for careful planning. You will need to keep detailed records of your income and expenditure, and account for your profits to HMRC.

Some of the expenses you incur are tax-deductible, and any losses you make can be set against future years. An accountant or professional adviser might be helpful if you have no previous experience of running a business.

Find out more in our guide to tax for the self-employed.