Does Part Time Work Affect Your Pension?

Q.

I am looking for a Saturday assistant. I have been approached by a gentleman who is retired and receiving a pension.

If I employ him will this affect his pension? He will be working 6 hours a week. He is worried about losing his pension if I take him on.

A.

Working When Retired

While six hours per week may not seem likely to bring in a large income, and may not have a bearing on pension amount, it may make a change to actually paying tax. The main issue will be with taxable income, a figure that can change each year. Part-time work during retirement does still count as taxable income. The good news is that the tax-free allowance is usually higher when a person reaches retirement, meaning that you will be able to earn more before paying any tax. A person who is retired and claiming their state pension and then decides to resume work will need to work out whether or not the extra employment income will affect their tax free allowance. This can be done adding up all of your taxable income and then comparing this amount to the amount you are allowed to earn before paying tax.

Tax Free Allowance

There are numerous forms of income that are classed as taxable. Taxable income will include all state and occupational pensions, employment earnings, interest made from savings, money from benefits, some income from property, and income from various shares. However there are a number of income sources that are not taxable such as pension credit, premium bonds, certain benefits such as income supports and lump sum pension benefits. Tax free allowances will also include the basic personal allowance that is applicable to everyone and this limit does become higher the older you are. To work out if your part-time employment earnings will make a difference you will need to subtract your tax free allowance from your total taxable income including the new earnings from your part-time job. If there is money left once you have subtracted then you will need to pay some tax, if there is nothing left then you should not be paying any tax and may be entitled to a refund. Also bear in mind that there are certain allowances that can decrease your tax bill such as married couple’s allowance. Anyone who is working after retirement will also not have to pay any National Insurance Contributions. You can find more information on the tax free allowance from government offices such as the Department for Work and Pensions.