According to Royal London, there are around half a million people who could be paying tax on their state pension. The mutual insurer goes on to claim that, in 2017, 1.1 million people over 65 were in employment and approximately 950 000 were drawing on the state pension, as well as receiving earnings from work. 520,000 of those receiving this wage packet were earning an amount that took them into a higher-rate income tax threshold. This results in the entire value of the state pension being taxed.
The option to defer
Rather than claiming the state pension and paying tax, over-65s have the choice to defer receiving this income. The decision to wait until you have officially retired adds to your funds in two ways. First, you will not be paying tax. Second, for each year you defer, you can receive an extra 5.8% on your pension, depending on when you took your benefits. It is a good idea to seek independent advice about your specific scheme.
If you have already started to claim your pension, you may feel it is too late to defer. However, if you are still working, you have the option to “unretire”. You need to apply to the Department for Work and Pensions asking them to stop paying the pension. (Telegraph, 2018)
Feeling younger into older age
Some may feel they have worked hard enough by the time they have reached 65. However, we are living longer, and 65 is no longer the old age we once perceived. It is entirely acceptable to believe you have a lot to offer to the workforce. Therefore, the option to defer or “unretire”, gives the people who choose this the chance to double the benefits – reducing the tax burden while increasing the value of the pension once they do decide to retire.
The content in this article was correct on 19th May 2019. You should not rely on this article to make important financial decisions. Teachers Financial Planning offers advice on pensions for teachers and non-teachers. Please use the contact form below to arrange an informal chat with an advisor and see how we can help you.