A retired person, or pensioner in the UK can continue to work after their official retirement age has passed. The amount that can be earned while drawing a pension is theoretically unlimited, however, taxation and personal allowances are added complications which a working pensioner needs to be aware of. The situation as of May 2013 is laid out below.
As of May 2013, the current retirement age for men is 65 and for women, 60. From this age, if the person has paid sufficient National Insurance contributions throughout their working life, they are entitled to a state retirement pension. The amount of the state pension is dependent upon the amount of years National Insurance contributions were paid. The maximum amount of state pension paid currently is £110.15 per week, which works out at £5727.80 per year. Retired persons who did not pay sufficient National Insurance contributions may receive a "top-up" of pension credit and, in addition, there is an earnings related additional pension that is referred to as SERPs, or second pension. The amount of state pension that an individual is entitled to varies widely and is specific to each person under the current system.
The current situation with regards to income tax is best illustrated with an example. Retired person A receives £5000.00 per year in basic state pension and earns an additional £4000.00 per year in their employment. Person A has a personal tax allowance (tax code) of £10,500.00, meaning that they can have a taxable income up to that amount without paying Income Tax. As Person A has an income of £9000.00 per year, they do not have to pay income tax. However, Person B receives a pension credit, to make up the basic pension to the level indicated under the "Minimum Income Guarantee" and then begins working to earn extra income, so the pension credit portion of the pension paid would be stopped, as it is means tested.
The government are proposing a simpler single level pension scheme which will move away from the pension credit and means testing carried out currently. This is likely to mean that from 2016, those retiring will receive a flat rate pension which is predicted to be £144.00 per week equivalent.
It is estimated that 1.5 million retired people in the UK are not claiming their full entitlement of state pension and pension credit. There is a government website dedicated to pensions and in addition, Age UK provide advice and guidance to those who need it. Any retired person who is unsure of their rights in relation to pensions or earning while receiving a pension should seek individual advice.
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