I want to know whether I can work part time. I’m a retired person so how many hours can I work a week without it affecting my pension?
Steve Webb replies: The good news is that you can work any number of hours you choose without it affecting your state pension.
But there are a few other things you may need to think about if you opt to work past state pension age.
Regarding the state pension itself, it was once a ‘retirement’ pension, and anyone who earned more than a certain level faced a reduction in their pension entitlement.
But these earnings rules are long gone, and you can work as much as you like without it impacting on your pension. You do not even need to tell the Department for Work and Pensions that you are working.
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A second bonus of working past pension age is that you no longer have to pay National Insurance Contributions, so you get to take home more of your wages than you would if you did the same job when under pension age.
In terms of automatic enrolment into workplace pensions, your employer no longer has a legal duty to enrol you into a pension once you are over pension age, but you retain a legal right to opt in, provided you are under the age of 75.
One attraction of opting in to a workplace pension is that this will trigger a payment into your pension from your employer.
Although you are unlikely to build up a huge sum if you are only working part-time post pension age, the employer contribution is, in effect, ‘free money’.
And, once you are ready to take your private pension, you can typically take a quarter of it out tax free, which makes this a very tax efficient way of building up a bit more money for when you finally stop work.
In terms of taxation, both your state pension and your wage are subject to income tax.
Your state pension is paid ‘gross’ (that is, before the deduction of income tax), but the tax free allowance which is applied to your wages will be reduced to reflect this chunk of untaxed income.
As a result, you are likely to pay basic rate income tax on pretty much all of your earnings.
To give an example, in the financial year which has just started, the tax-free personal allowance remains at £12,570, and the standard rate of the full new state pension is £230.25 per week or £11,973 per year.
This means that you can only earn around £597 over the course of the year before income tax starts to apply.
The way this is done in practice is that your employer will be sent a pay-as-you-earn (PAYE) coding notice which takes account of your state pension and tells them how much income tax to deduct from your pay each week or month.
Provided that you have no other taxable income, this process should result in you paying the correct amount of income tax over the course of the year and so you should not need to fill in an income tax return.
If you are on a low income, even including your part-time wage, then you may still be entitled to income-related benefits.
These include pension credit for those on the lowest incomes, or help with rent or council tax from your local authority.
However, If you apply for any of these benefits you will need to report your wages (and any change in your wages), and the fact that you are earning will reduce the amount of benefit that you can get.
