Do you have a financial anxiety, dilemma or quandary? Ask Jessie Hewitson, veteran money journalist and editor, and new financial agony aunt forThe i Paper. Jessie is answering readers’ questions while consulting with the top experts in the field (many of whom charge high fees) to get readers the very best advice. She will combine this with her own life experiences, which includes not always making the most sensible financial decisions in her personal life. Email questions tomoney@inews.co.uk, with Ask Jessie in the subject line and she will get to work.
Rose, a reader, writes
I am 66 this year. I have paid the maximum National Insurance (NI) in order to entitle me to a full state pension. I am a self employed consultant and am still paying NI.
I submit a self assessment record every year and on my 2025/26 return I shall be declaring the state pension. Will that be subjected to tax? And will I continue paying NI on my self employment? Are there any exemptions for retirees who continue to work?
Jessie responds…
The first question of your letter is easy to answer: you will pay tax. As you will soon get a state pension of £11,973, you won’t have to earn much money from your consultancy work before you are over the £12,570 threshold that triggers income tax.
The second part of your letter – on whether you will continue paying NI after the official retirement age as you are self employed – was unexpectedly harder to answer.
Accepted wisdom is that you don’t pay NI after reaching the official retirement age, when state pension payments kick in.
As such, I was about to confidently reply to you to say you won’t have to pay after you hit 66 but a small voice in my head told me to check this. And I’m glad I did, because there in a dark recess of the Government’s website I read that while this is the case for employed people, it isn’t true for self-employed people.
For self-employed people, the website confirms, you have to keep paying NI until the end of the tax year while employed people stop paying it the week they hit this milestone.
Read Next
square SAVING AND BANKING
Read More
This came as news to me, so I checked with some senior people in the pension world and they also didn’t know this — including one person whose knowledges of pensions is encyclopedic. And if he doesn’t know something, it’s safe to assume very few people do.
So thanks to your letter I now know that a key assumption around NI is not correct: self employed people do pay it past retirement age. They also pay the tax (which is in part levied to pay for the state pension) while they receive the state pension, which automatically lowers the amount received.
So if your birthday is just after the end of the tax year, you could end up paying class 4 NI contributions – which could cost £2,500 a year for a self-employed person earning £50,000 – for close to a year longer than an employed person.
I checked this with the Department of Work and Pensions (DWP) and HMRC and, to answer your final question, there aren’t any exemptions. I would suggest to the DWP and HMRC that they need to work on building public awareness of this issue.
For me your letter also highlights that you are one of a growing trend of pensioners paying tax as a result of the freezing of the income tax threshold during years in which the state pension has gone up significantly. You are also one of a growing number of people who are working beyond pension age.
But you also show another way self employed people are disadvantaged, particularly when it comes to pension saving.
Self employment is wonderful in many respects. I’m now half self-employed, and like a lot of women it’s made trying to manage caring responsibilities while earning an income more possible.
But the cost can be high. While people often point to self employed workers using limited companies to pay less tax compared with employed people, the loss of pension income is often ignored.
Factor in the absence of anyone opening a pension for you, or topping up your contributions (as you get under auto enrolment when you are employed) – and now this extra NI payments – and these differences in income tax can seem small fry.
