In our weekly series, readers can email any questions about their finances to be answered by our expert, Rosie Hooper. Rosie is a chartered financial planner at Quilter Cheviot and has worked in financial services for 25 years. If you have a question for her, email us at money@inews.co.uk.
Question: I retired but have since started a part-time job – I’m drawing a small defined benefit (DB) pension that takes up my personal allowance. What happens now regarding tax – what will I have to pay?
Answer: For many people, going back to work after retirement can be a very positive step. A part-time role can provide structure, social contact and a renewed sense of purpose at a stage of life when those things can fall away. For some, the motivation is financial and the extra income is genuinely needed to make ends meet. For others, money is not the driver at all; the work helps them stay active, connected, and mentally engaged.
Ironically, it is often the second group, those who already have complex retirement incomes, where the financial planning becomes more involved rather than less. Once earnings are added on top of pensions, the tax system can behave in ways that are not always intuitive.
In the 2026-27 tax year, the standard personal allowance remains £12,570. If a defined benefit pension already uses up that allowance, any additional income is taxable from the first pound. That includes income from a part-time job.
Where the job is paid through Pay as You Earn (PAYE), HMRC will normally issue the employer with a tax code reflecting the fact that the allowance is already used elsewhere. In practice, that often means all of the part-time earnings are taxed at the basic rate of 20 per cent, with tax deducted automatically through the payroll. As long as the tax code is correct, there is usually nothing further to do.
This is where the state pension often complicates matters. Although it is taxable, it is paid without tax being deducted. HMRC instead collects any tax due on it by adjusting the tax code on another income source, such as a pension or employment. For many retirees, particularly where the state pension sits close to the personal allowance, this can come as a surprise.
Taking on even a modest salary can result in more tax being deducted through PAYE than expected, simply because HMRC is using that income stream to mop up tax due elsewhere.
State pension deferral is another area where people need to tread carefully. Once someone has started taking their state pension, they can choose to defer it in order to manage their income. However, this option can only be used once.
If the pension is restarted at a later date, it cannot be deferred again. For those temporarily unretiring or trying to manage income around tax thresholds, that lack of flexibility can catch people out if the decision is not timed carefully.
Pensions themselves are another common pitfall. Anyone who has accessed a pension flexibly will usually have triggered the money purchase annual allowance (MPAA), which significantly restricts how much can be paid into pensions tax-efficiently each year. Returning to work can also mean being automatically re-enrolled into a workplace pension.
While auto-enrolment generally applies only up to state pension age, joining or rejoining a scheme can still have unintended consequences for those who have triggered the MPAA or who hold certain forms of pension protection.
There is a wealth of guidance, modelling tools and support focused on helping people stop work, but far less aimed at those who later decide to step back in. A short period of work can be hugely rewarding, but making sure it fits cleanly with the rest of someone’s financial life can make all the difference between it being a help or a headache.