Is it Worth Taking A Part-Time Job on A Pension?

Q.

I took early retirement in 2005 and receive a small pension, with the new government increase on tax to 20% this year, I now pay £30 per month from my pension. However, the government climbdown to 10% will give me a new tax code of 603L. I have been offered a job, albeit only part time 4hrs per day Mon/Fri @ £6.77p per hr. To consider if it is worthwhile me taking, can you tell me what percent I would pay in tax and NI, and would my tax rate state a BR code*.

A.

Hello there,

Yours is not an uncommon situation; more and more individuals who derive the bulk of their income from a pension are looking to take on part-time jobs in order to top up this income. However, as you have pointed out, working while retired can have significant tax implications. This is particularly the case for those who receive a private pension, as a part-time job could push them into the next tax bracket.

Personal Allowance

From looking at your tax code, it can be seen that you can currently earn £6,035 per annum before you are required to pay tax. If you were to work in your part-time job 52 weeks per year, you would earn an extra £7,040.80. If you take on a second job, all of your income will be bundled together for tax purposes. As such, the rate of any tax paid on pension income may change if your total income exceeds your Personal Allowance. You have not stated how much your pension income is. However, regardless of this the income derived from your part-time job, would push you over your personal allowance anyway.

The BR tax code appears when the basic rate of tax applies to all of your income. This is almost always the case for those with two jobs, as their personal allowance will have been used up by their primary employment. In your case, even working while retired, rather than working two jobs, the BR tax code will almost certainly apply as your part-time job will use up your personal allowance. As such, you will be taxed on the excess £1,005.80 at basic rate of 20% in the tax year.

National Insurance Contributions

The tax paid on pension income may seem to increase as a percentage, although this will be offset by the extra money you are earning. On its own, the income from your part-time job will not incur a National Insurance liability as it falls below the lowest earnings bracket of £102 per week for primary Class 1 contributions. However, if your total income exceeds this figure, you are likely to be charged Class 1A Contributions at a rate of 12%. This will not apply, however, if you are male and 65 or over, or female and 60 or over. In these cases, National Insurance is no longer levied.

*Figures have been adjusted to relate to the current 2011-12 tax year.