Working Past State Pension Age: What Are the Benefits?

The number of people working past state pension age is considerably higher than it was a decade ago. The coalition government's decision to abolish compulsory retirement in 2011 has played its part, but there are other factors at play too. While many people remain in work to keep themselves mentally and physically active, some take the opportunity to start their own business. But for others, it just makes sound financial sense to carry on working after retirement age.

Not only will you continue to earn money by working past state pension age, you’ll also be able to keep more of the money you earn because you’ll no longer be required to pay National Insurance. If you want to, you can start to receive your state pension whilst you work – although it will be counted as taxable income. You can also start to receive any private pension you may have, as long as you’re not still contributing to it.

Deferring state pension

Alternatively, if you carry on working past 65, you can choose to defer your state pension, which means postponing the date that you start to receive it. If you don’t need to receive the state pension, it can be worth deferring because you will be rewarded with a choice of two financial benefits.

If you opt to keep working past state pension age, you can choose to receive a higher rate of state pension when you eventually claim it. Under the new state pension regulations, anyone that hit state pension age on or after 6 April 2016 will be paid an extra 5.8% for every year that they defer their state pension. However, anyone who hit state pension age before 6 April 2016 and chose to defer their pension will be making an extra 10.4% per year.

People who reached state pension age before 6 April 2016 could choose a lump sum payment, which will be the value of the pension you would have been eligible to claim, increased by the Bank of England base rate plus 2%. However, this option is not available to anyone who qualified for the state pension on or after 6 April 2016.

Working past 65 isn't for everyone, but it can make perfect sense for people who are looking to save a little bit more cash for an extra special retirement.