What happens to your State Pension if you keep working?
Working past State Pension age changes three things: you stop paying National Insurance on your earnings, your State Pension is taxable income on top of your salary, and the tax code has to reflect both. The first is a pay rise, the second is a tax bill, and the third is where the unpleasant surprises come from.
- National Insurance: employee contributions stop on earnings from State Pension age.
- The pension: taxable as income, with no tax deducted at source from it.
- The code: usually adjusted so the tax on the pension is collected through the salary.
- The alternative: deferring, which pays about 5.8% more per year and is a separate decision.
01 The National Insurance saving
From State Pension age, employees stop paying Class 1 National Insurance on their earnings, and the self-employed stop paying Class 4 from the start of the following tax year. Employers continue to pay their contributions.
On a salary at the higher-rate threshold that is a saving of several hundred pounds a year, arriving automatically. It is worth checking a payslip after the birthday, because payroll occasionally continues deducting and the correction has to be requested.
The saving is genuine and it is often the only element of this transition that goes right without attention.
Source: National Insurance: introduction
02 The pension is taxable and untaxed at source
The State Pension is taxable income, and it is paid gross — no tax is deducted from it. The liability is real and has to be collected somewhere, which is normally through an adjustment to the tax code on your employment or private pension.
That adjustment reduces the tax-free allowance applied to the salary, so a person whose salary has not changed sees their take-home pay fall in the month the code changes. Nothing has gone wrong; the tax on the pension is being collected.
Where there is no other PAYE income to code against, HMRC issues a Simple Assessment instead, which is a demand rather than a deduction. That is the version that arrives as a letter and surprises people.
Shows: the National Insurance saved on earnings against the tax due on the State Pension. Ignores: the exact tax code adjustment, Scottish rates, and any private pension income.
On the defaults above, the worked example shows £-315 a year. National Insurance saved is £2,194; tax on the State Pension is £2,510.
03 Whether to claim it at all
Someone still working may be better off deferring. Deferral adds about 5.8% a year, and claiming a pension that is taxed at 40% against earnings, then deferring until the earnings stop, can move the whole pension into the basic-rate band.
That tax effect is separate from the 5.8% and can be larger. It is the strongest argument for deferral available, and it applies specifically to people who carry on working past State Pension age.
The counterweight is that deferral is a longevity bet and the forgone income is real. The arithmetic is worth running rather than defaulting either way.
Source: Deferring your State Pension
Two things happen and only one of them is welcome. Your National Insurance on earnings stops, which is a real pay rise. And your State Pension arrives untaxed at source with a tax liability attached, which HMRC collects by changing the code on your salary — so your take-home pay falls in the month it happens and nothing has gone wrong. If you are still working and paying 40%, look hard at deferring instead. Claiming a pension into a higher-rate band and then retiring is the wrong order, and the tax effect of getting it right is often larger than the 5.8% uplift.
FAQ
Do I stop paying National Insurance?
On your earnings, yes, from State Pension age for employees and from the start of the following tax year for the self-employed. Employers continue to pay their own contributions. Check a payslip afterwards, as payroll sometimes keeps deducting.
Is the State Pension taxed at source?
No. It is paid gross and is taxable, so the liability is collected elsewhere — usually by reducing the tax-free allowance in the code applied to a salary or private pension, or through a Simple Assessment where there is no other PAYE income.
Should I defer instead?
Often, if you are still working and paying higher-rate tax. Deferring adds about 5.8% a year and lets you claim once earnings stop, which can move the whole pension into the basic-rate band — an effect separate from and sometimes larger than the uplift.
Sources
Regulator references
- National Insurance: introduction · GOV.UK · 2025Which class of National Insurance applies to which kind of earnings.Last verified: 2026-09-07
- Income Tax rates and Personal Allowances · GOV.UK · 2025The band boundaries every figure in this post is calculated against.Last verified: 2026-09-07
- Deferring your State Pension · GOV.UK · 2025States the deferral increment and how it is paid, which the arithmetic here depends on.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.