HM Revenue and Customs (HMRC) has released new guidance explaining how the state pension tax rules affect pensioners who continue working, as changes to the state pension age mean some will face higher tax bills.
Key Changes to State Pension Age
The state pension age is increasing from 66 to 67 in one-month increments between April 2026 and April 2028. This shift means older workers will have to wait longer before they stop paying National Insurance (NI) contributions. For example, someone turning 67 after April 2028 will pay NI for an extra year compared to those who reached 66 before April 2026.
HMRC Q&A on Working While Drawing Pension
On July 19, HMRC posted a video on social media answering common questions. The post asked: "Thinking about working while drawing your pension?" and added: "Our Q&A is here to help you understand your options, from working alongside a pension to changes in National Insurance."
In the video, HMRC confirmed that people can work while receiving a state pension, private pension, or both. The tax authority stated: "Yes, you can work while receiving your state pension, a private or workplace pension, or both. Many people choose to do this, and the tax rules are straightforward."
National Insurance After State Pension Age
HMRC explained that NI contributions stop once a person reaches state pension age. The guidance said: "No, you stop paying National Insurance once you reach state pension age, even if you keep working. Employed people stop automatically. Self-employed people stop from the next tax year."
However, because the state pension age is rising, many future retirees will pay NI for longer than previous generations. The phased increase means that between 2026 and 2028, those turning 66 will not yet qualify for the pension and must continue contributing.
Future Increases and Review
Looking ahead, the pension age is scheduled to rise again from 67 to 68 between April 2044 and April 2046. An independent review in 2023 recommended moving this timeline forward by three years, but the government decided not to adopt the proposal.
HMRC also directed pensioners to its online 'Tax Confident in Retirement' hub, which explains how savings, investments, inheritance, and tax assessments are handled after retirement.
