HMRC has confirmed a state pension rule change that will force some people to pay more tax under the Labour government. The tax authority issued an update explaining the tax rules for state and private pensions, alongside a Q&A on working while drawing a pension.
Working and Receiving Pension
In a post on X, formerly Twitter, HMRC asked: "Thinking about working while drawing your pension?" It added: "Our Q&A is here to help you understand your options, from working alongside a pension to changes in National Insurance."
The first question addressed whether a person can keep working while receiving a pension. HMRC answered: "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 and State Pension Age
The second question concerned National Insurance (NI) payments while working. HMRC stated: "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, the state pension age is increasing in stages. Between April 2026 and April 2028, it will rise from 66 to 67 in one-month increments. This means people who turn 67 after April 2028 will pay an extra year of NI compared to those who reached the previous pension age of 66 before April 2026.
Future Increases and Implications
Future retirees will face even higher NI payments as the state pension age is scheduled to increase again from 67 to 68 between April 2044 and April 2046. A 2023 independent report commissioned by the government suggested bringing this timetable forward by three years, which would accelerate the impact.
These changes mean that some individuals will have to pay more tax to HMRC due to the extended period of NI contributions before reaching state pension age. The Labour government has not indicated any plans to alter the scheduled increases.
