Research published last week by mutual insurer Royal London found that more than half a million people who are working past their state pension age could be paying unnecessary tax on their state pension. This is because they have not chosen to defer their state pension until they stop working, and because of this it is classed as income and is taxable.
Many people are not aware they are able to defer their state pension so will draw it as soon as they are eligible for it. Royal London said that in 2017, around 1 million people in the workplace were aged 65 or above. Of these there were around 950,000 who were working and drawing their state pension. More than half of these were earning enough to take them over the payment threshold which meant their pension could be taxed. Anyone who is earning enough without their state pension should consider deferring it rather than losing some of it to the taxman.
Their research shows the difference deferring can make-see below:
A man who defers for a year and has an average life expectancy at 65 of 86 will be around £3,000 better off over retirement than someone who takes his state pension immediately and pays more tax.
A woman who defers for a year and has an average life expectancy at 65 of 88 will be around £4,000 better off; as well as the tax advantage, she also enjoys two extra years of pension at the higher rate.
For more information on deferring your state pension click here.