State pension age and NI contributions
No more default retirement
The default retirement age (DRA) which permitted employers to force employees to retire on their 65th birthday (which was the state pension age at the time) was abolished on 1 October 2011.
As the law now stands, it’s an employee’s personal choice when they retire, i.e. they don’t have to do this once they reach state pension age .
State pension age is the earliest age at which an individual is entitled to start receiving their state pension.
A subscriber’s query
After the DRA was removed, many employees decided to stay on in employment despite reaching state pension age. The state pension age is currently 66 for men and women and it’s scheduled to rise to 67 between 2026 and 2028.
One of our subscribers wants to know what happens about NI contributions (NICs) where an employee continues to work after state pension age . What’s the answer?
Employee NICs
Employees no longer have to pay Class 1 and Class 2 NICs once they reach state pension age - so you must stop deducting them from their pay, but this won’t happen automatically.
You have to effect this change by updating the employee’s NI category letter to “C” in your payroll software (or you can ask your payroll provider do this on your behalf).
Proof of age
However, even if you’ve employed them for some time, your employee must still show you one of the following documents to prove that they’ve reached state pension age:
- birth certificate
- passport
- a letter from HMRC confirming that they’ve reached state pension age (if they don’t want you to see their birth certificate or passport).
Tip. Make sure you see the original document and keep a copy on the employee’s personnel file.
Employers’ NI
Unfortunately, employers are not so lucky - you must continue to pay employers’ NI on the earnings of an employee who has reached state pension age. The employers’ NI liability remains whatever the employee’s age.
Where an employee continues to work past state pension age and they qualify for that benefit, they will receive their salary payments from you and their state pension from the government.
Tip. If the two together exceed the employee’s annual tax-free allowance, they’ll have a personal income tax liability - but that’s a matter between them and HMRC. In the event the employee overpays NICs, e.g. they don’t give you proof of their age in time, they can claim the excess back from HMRC (see The next step ).
For further information on how to reclaim an NIC overpayment, visit https://www.tips-and-advice.co.uk , Download Zone, year 24, issue 17.
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