Over 65s paying unnecessary tax
New research from Royal London has shown up to 520,000 workers could be paying unnecessary tax on their state pension. These over 65s are drawing their state pension, but still earning enough to go into the higher-rate bracket. This will mean their entire state pension is taxed.
It’s possible for working over 65s to defer their state pension until they retire fully. Royal London estimates that those who do so could receive an extra 5.8% per year for each year they defer.
It’s also possible for anyone who’s started to draw their pension to ask for pension payments to be stopped. They would then effectively ‘unretire’.
The Director of Policy at Royal London, Steve Webb said: ‘There has been a huge increase in the number of people working past the age of 65, and most of these people are claiming their state pension as soon as it is available. For around half a million workers, this means every penny of their state pension is being taxed, in some cases at the higher rate. If their earnings are enough to support them, it makes sense to consider deferring taking a state pension so that less of their pension disappears in tax.’
If you know someone who’s working beyond the age of 65, it could worth exploring this situation more fully.