Half a million of people working past retirement age may be paying too much tax on their state pension, new analysis reveals.
This is because they have not taken up the option of deferring their state pension until they stop work.
Around 520,000 workers over the age of 65 are earning enough to take them over the tax threshold and have not deferred their state pension, according to research by insurer Royal London.
This means that their state pension has been added to their earnings and can therefore be taxed as a result - in some cases at 40%.
If they defer their state pension until they retire their pension will be higher.
Royal London says that on average those who defer their state pension can get an extra 5.8% per year on their pension for the rest of their life for each year that they defer.
Their personal tax allowance will then cover all or most of their state pension, reducing the amount of tax they have to pay on their pension.
A 65-year-old man with an average life expectancy of 86 who defers for a year will be around £3,000 better off over retirement than someone who takes his state pension immediately and pays more tax.
A woman of the same age with an average life expectancy of 88 will be around £4,000 better off.
In 2017 there were around 1.1 million people in the workforce aged 65 or over. Of these, roughly 950,000 were combining paid work with drawing a state pension.
Steve Webb, director of policy at Royal London, says: “There has been a huge increase in the number of people working past the age of 65, and this research finds that most of these people are claiming their state pension as soon as it is available.
“For around half a million workers, this means every penny of their state pension is being taxed, in some cases at the higher rate. If their earnings are enough to support them, it makes sense to consider deferring taking a state pension so that less of their pension disappears in tax.
“Those who have worked hard to build up a state pension through their working life do not want to see a big chunk of it disappear in unnecessary taxation. The government should be doing more to alert this group to the option of deferring, as current publicity is clearly not working.”
The tax-free personal allowance is set to rise from £11,850 on 6 April to £12,500 for the 2019/20 tax year. Above this amount you will pay 20%. Higher rate tax payers earning £50,000 or over will pay 40%.