How will drawing my state pension affect my TfL pension and what happens if I work part-time? Steve Webb replies
I will be 66 in December. I have a private pension from Transport for London.
Will that be taken away from my state pension, or added to it and count towards my total income?
Also, if I decide to work part time at a weekend job how will it affect my pension?
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Retirement finances: How will starting to draw my state pension affect my TfL pension?
Steve Webb replies: The good news is that there is nothing in principle to stop you from drawing a state pension, a company pension and doing a part-time job all at the same time.
You would, however, need to be aware of the tax implications of doing so.
Starting with the state pension, although it is often referred to as a ‘retirement pension’, there is no obligation to be ‘retired’ before you draw it.
Many years ago there were rules about how much you could earn whilst drawing a state pension but these have long-since been abolished.
Regarding your TFL pension, this would simply be added to whatever state pension you are entitled to.
Steve Webb: Find out how to ask the former Pensions Minister a question about your retirement savings in the box below
It is worth pointing out that the amount of state pension you are going to get already takes account of the years when you were contributing into the TFL pension scheme.
Due to a process known as ‘contracting out’, in those years you were paying a reduced rate of National Insurance Contributions and you were building up less in the way of ‘earnings-related state pension’ (SERPS) than you would have done if you had not been in the TFL scheme.
But when the Pension Service tell you how much state pension you are now going to get, they have already adjusted your state pension to take account of all of this, so your state pension will be in addition to your TFL pension.
As regards taking part-time work, there is generally no problem with this.
There are sometimes rules about going back to work for a former employer (such as TFL) whilst drawing an occupational pension from that employer, so if you were planning to work for your former employer you should check this first.
But apart from that, you can do any part-time or full-time work that you wish.
The only thing to be aware of is that state pensions, occupational pensions and wages are all subject to income tax.
Each year you can have £12,500 in income on which no tax is paid, and anything beyond this is taxed, initially at 20 per cent.
If we assume that your state pension plus your TFL pension takes you over £12,500, then every pound you earn from a part-time job, starting from the first pound, will be subject to income tax.
The good news, however, is that once you are over state pension age there will be no National Insurance Contributions to be paid on your wages.
ASK STEVE WEBB A PENSION QUESTION
Former Pensions Minister Steve Webb is This Is Money’s Agony Uncle.
He is ready to answer your questions, whether you are still saving, in the process of stopping work, or juggling your finances in retirement.
Steve left the Department of Work and Pensions after the May 2015 election. He is now a partner at actuary and consulting firm Lane Clark & Peacock.
If you would like to ask Steve a question about pensions, please email him at firstname.lastname@example.org.
Steve will do his best to reply to your message in a forthcoming column, but he won’t be able to answer everyone or correspond privately with readers. Nothing in his replies constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.
Please include a daytime contact number with your message – this will be kept confidential and not used for marketing purposes.
If Steve is unable to answer your question, you can also contact The Pensions Advisory Service, a Government-backed organisation which gives free help to the public. TPAS can be found here and its number is 0800 011 3797.
Steve receives many questions about state pension forecasts and COPE – the Contracted Out Pension Equivalent. If you are writing to Steve on this topic, he responds to a typical reader question here. It includes links to Steve’s several earlier columns about state pension forecasts and contracting out, which might be helpful.
If you have a question about state pension top-ups, Steve has written a guide which you can find here.
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