Over half a million people working past their pension age could be paying extra tax unnecessarily, analysis has revealed.
Older employees who do not defer their state pension until they stop work, and who earn more than their tax-free personal allowance, are paying tax on their whole pension.
In 2017, around 1.1 million workers were age 65 or over – 950,000 of them and around 520,000 were earning more than their personal allowance, a study by insurer Royal London found.
If workers defer their state pension until they retire, their tax-free allowance should cover all or most of their pension, reducing the amount of tax they must pay.
And those who defer their state pension will get an extra 5.8% a year for the rest of their lives, for each year they defer. It amounts to an extra £3,000 for the average man and £4,000 for women.
Sir Steve Webb, of Royal London, advised workers: “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.”
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