Older people used to be eligible for a higher tax-free allowance. That’s no longer the case – but there are still valuable tax breaks to be had.
What tax do I pay in retirement?
You can earn a decent amount of money – from your salary or pension – before you pay any tax.
Most people have an annual personal allowance, which is an amount of income they can keep tax free.
In 2022-23, this is £12,570, unchanged from 2021-22.
Older people used to be eligible for a larger tax-free allowance, but this changed in 2016.
However, there are still valuable tax breaks for older people. This guide explains what they are.
Do I pay National Insurance in retirement?
When you reach state pension age, you no longer have to pay National Insurance contributions.
This is a significant saving. In the 2022-23 tax year, employees save:
13.25% on income between £9,568 (£12,570 from 6 July) and £50,270
3.25% on income above £50,270
In the previous tax year (2021-22), you saved 12% tax on income between £9,568 and £50,270 and 2% on income above £50,270.
Employees will stop paying National Insurance contributions as soon as they reach state pension age.
However the 1.25% health and social care levy will apply to those that have reached state pension age in April 2023.
How do I stop National Insurance being deducted?
If you continue working after state pension age, to stop National Insurance being deducted you’ll need to prove your age to your employer, either by producing a birth certificate or passport.
If you are unable to provide these documents, write to: HM Revenue and Customs, National Insurance Contributions Office, Contributor Caseworker, Longbenton, Newcastle upon Tyne, NE98 1ZZ.
What happens to National Insurance if I’m self-employed?
The self-employed pay slightly less National Insurance and this is no longer deducted when you reach state pension age.
In the 2022-23 tax year, the self-employed save:
£3.15 a week on income over £11,908
13.25% on income between £9,880 (£12,570 from 6 July) and £50,270
3.25% on income above £50,270
In the previous tax year (2021-22), you saved £3.05 a week on profits over £6,515, 9% on profits between £9,568 and £50,270, and 2% on profits above £50,270.
Self-employed workers will need to keep paying National Insurance until the end of the tax year in which they reach state pension age.
If you are self-employed, tick the relevant box on the self-employment pages of the self-assessment tax return to claim exemption from Class 4 National Insurance contributions (NICs).
This applies to the end of the tax year in which you reach state pension age, so you may need to carry on paying NICs for some months after your birthday.
Class 2 weekly self-employed National Insurance contributions should cease automatically, from the Saturday following the date on which you reach state retirement age, but you should check your statements from HMRC to make sure.
Get a head start on your 2021-22 tax return with the Which? tax calculator. Tot up your tax bill, get tips on where to save and submit your return direct to HMRC with Which?.
I’ve taken early retirement? Do I pay National Insurance on my pension?
National Insurance contributions are only charged on income from employment or self-employment.
If you have a private or company pension that is your only form of income, you won’t pay National Insurance on it.
Similarly, you don’t pay National Insurance on savings or investment income.
However, by no longer paying National Insurance, you risk not building enough contributions to get the full state pension and may need to buy voluntary contributions to get the full amount.