More than half (52%) of adults plan to carry on working in their retirement, a new survey from fund supermarket Fidelity International has revealed.
The report also found that 45% of people expected to work past the age of 70 and almost 10% planned to keep working into their 80s.
Those working past retirement could face a number of financial issues if they choose to claim their state and personal pensions while working.
Here, we explain the financial implications of working past state pension age and how to make sure your income is protected.
Can you work after pension age?
Recent changes to the law have made it possible to keep working after you reach state pension age.
In 2011, the government removed the ‘default retirement age’ (DRA) which had enabled employers to force their staff to retire at the age of 65, regardless of whether they wanted to continue working or not.
While some companies can still insist on a cut-off age, they’ll have to be able to justify this objectively, such as a job that requires a high level of physical fitness.
- Find out more: state pension age calculator
Three things to do if you want to work past retirement age
1) Stop paying national insurance
Once you hit state pension age, you are no longer required to pay National Insurance.
If you carry on working for an employer, you need to provide them with proof of your age and check that National insurance contributions are no longer deducted from your pay.
If you’re self-employed, you can also stop paying National Insurance, although you may still have to continue making Class 4 contributions in the first year you turn 65.
- Find out more: what is national insurance?
2) Consider deferring your state pension
If you’re working and getting a pension, be aware that both your wages and your pension will be included in your total taxable income. That means the amount of income tax you pay could increase.
Deferring your state pension start date could help ensure that you don’t end up paying too much tax.
In December 2018, the state pension age was equalised for both men and women which meant that the state pension age for women increased from 60 years to 65 years – the state pension age for men. It will rise to 66 in October 2020.
Choosing to defer your state pension can also boost the amount of income you’ll receive once you decide to take retirement.
How much more income you get will depend on when you reached state pension age.
If you reached state pension age before 6 April 2016
If you reached state pension age before April 2016, for every five weeks that you defer your state pension, you will get an increase of 1%. This works out to 10.4% for every full year you defer.
The 2019/20 basic state pension rate is £129.25 a week. By deferring your state pension for 52 weeks, you’ll get an extra £13.44 a week.
If you decide to take a lump sum, you have to defer your state pension for at least a year. This sum is also taxable but only at the top rate you were paying beforehand.
If you reached state pension age after 6 April 2016
If you reached state pension age after April 2016, for every nine weeks that you defer your state pension, you will get an increase of 1%. This works out to 5.8% for every full year you defer.
The 2019/20 new state pension rate is £168.60.
This means that if you defer for 12 months your state pension entitlement will increase by £9.74 to £178.34 a week.
The extra amount will be taxed in the same way as the rest of your state pension.
The lump-sum option is not available to people who reached state pension age after April 2016.
- Find out more: deferring your state pension
3) Consider deferring your private pension
If you decide to take money out of pension pot and continue working, you won’t be able to keep paying into the scheme that you’re receiving your retirement income from.
Private pension income will also be subject to income tax.
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.
Deferring also means that you can continue to save as much as £40,000 a year into a pension and earn tax relief. Once you start withdrawing money from your pension, this could fall to just £4,000.
For more information and tips check out our guide on working in retirement.