Late Retirement and the State Pension

There is no need to retire when you reach State Pension Age (see State Pension Age): you can continue to work and draw your State Pension, plus be exempt from making further National Insurance contributions (see The Basic State Pension). If you were considering retiring before reaching State Pension Age, continuing to work will give you a chance to ensure your National Insurance record is on track to provide you with a full State Pension, and enable you to save a proportion of your earnings for your retirement.

Since October 2006, new age discrimination laws protect your right to work until you are at least sixty-five years of age. If you wish to work longer you will have to reach an agreement with your employer. Once you are of State Pension Age you no longer have to pay National Insurance contributions on your earnings but your employer has to make contributions based on your earnings.

You can choose to defer drawing your State Pension if you wish. If you consider that you can provide for yourself financially without the State Pension once you are of State Pension Age you can delay receiving State Pension and thus build up entitlement to a larger pension or a one-off lump sum when you come to draw your pension. If you deferred your pension on or after the 6th April 2006 you are entitled to a pension increase of 10.4% a year. If you were to defer your pension for a period of five years you would thus be entitled to a pension increase of over fifty percent. Your basic State Pension, State Second Pension and any Graduated Pension will all increase at the same rate (see State Second Pension and State Graduated Pension). This increased pension, or one-off lump sum, are both taxable, just as your usual basic State Pension is taxable.

If you defer your State Pension and your spouse’s State Pension is based on your National Insurance Record, your spouse’s State Pension will be deferred for the same amount of time. You are entitled to defer your State Pension even if you are already drawing it: you can stop receiving payments and build up entitlement to a larger pension or to a one-off lump sum. You are only allowed to defer your pension once. If you have deferred your State Pension you must inform the Pension Service when you wish to begin claiming your pension. You can contact the Pension Service on 0800 99 1234 for more assistance. See Claiming State Pension for more guidance.