Britain has entered a new financial year and with it comes changes to your personal finance, including retirement savings. A recent study has now revealed more than half a million people could be paying unnecessary tax on their state pension. The research, published by insurer Royal London, said that people who work beyond retirement age are the ones at risk.
Royal London revealed people who work past state pension age, but fails to defer their state pension payments are at risk of having their retirement savings taxed.
In 2019, the state pension age will gradually increase for both men and women until it reaches 66 in October 2020 and 67 between 2026 and 2028.
The retirement age was previously 65 for men and 60 for women.
The research showed that more than half of those who work past their state pension age were earning enough to push them over the tax-free allowance.
Is your state pension at risk of being slashed?
Around 950,000 people were working while also receiving their state pension in 2017 – and more than half of these were earning enough money to take them over the annual personal allowance, Royal London revealed.
In the 2019/20 tax year, the amount of money you can earn before being charged tax is set to £12,500.
People who continue to work past retirement age are having their payments taxed as much as 40 percent because they are failing to defer their state pension until they stop working.
If the income you earn is greater than your tax-free allowance, you will be liable to pay tax on your state pension.
The tax owed on your state pension is usually applied to any private pension or other earnings you have which are paid through the PAYE system.
If you have no PAYE income, you’ll have to complete a self-assessment tax return and pay any tax due directly to HMRC.
Therefore, people working beyond state pension age should consider delaying their payments.
Royal London’s research revealed the average woman who opt to defer for a year could be £4,000 better off over the course of her retirement.
Men who choose doing the same could be around £3,000 better off.
If you’re already started to draw your state pension payments, don’t worry, as it’s possible to “un-retire”.
To defer your state pension you can contact the Department for Work and Pensions (DWP) and let them know that you want to stop receiving your retirement payments until a later date.