A pensioner on green receipts: combining a pension with freelance work

Mr Fernando retired as an engineer, but his old clients keep calling him for small projects. He’d like to say yes - it’s work he enjoys and an extra that feels good. But he’s stopped by the usual question: “if I go back to issuing receipts, do I lose my pension? Do I have to contribute to Social Security again?”.

Good news for Mr Fernando: he can work freely. The pension doesn’t disappear, and Social Security even exempts him from contributing. Where he has to pay attention is in IRS - and that’s what we’ll focus on.

The pension and the activity stack - with no cuts

A pensioner can open an activity and issue green receipts without their old-age pension being reduced or suspended. The two incomes - the pension and what you invoice - stack freely. You keep receiving the full pension and still invoice your activity.

The only caveat is legal compatibility - on a normal old-age pension there’s no problem. But there are two exceptions: if your old-age pension came from converting an absolute-invalidity pension, it doesn’t stack with work; and an early-retirement pension (under flexibilização) cannot, in its first 3 years, be combined with any work or activity - including green-receipt services - for your former employer or its group (art. 62.º of DL 187/2007); breaching this can cost you the pension for that period, plus repayment and a fine.

In Social Security: you’re exempt

Here’s the part that surprises people when they retire. Unlike an ordinary self-employed worker, a pensioner receiving an old-age pension is exempt from contributing to Social Security on the activity’s income.

In other words: Mr Fernando doesn’t pay the 21.4% an ordinary freelancer pays, nor does he have to file quarterly declarations to Social Security. The exemption is usually applied automatically when you open the activity (the system already knows you’re a pensioner), but it’s worth confirming your status on Segurança Social Direta.

In IRS: no exemption here - the incomes add up

This is the point where Mr Fernando has to be careful. In IRS there’s no exemption at all: the pension and the green receipts are declared and taxed together.

• The pension goes in as category H income (in Anexo A).
• The green receipts go in as category B (in Anexo B).

The two incomes are aggregated - added together in the same IRS return. And because IRS is progressive (the more income, the higher the rate), adding the activity to the pension can push you into a higher bracket and raise the effective rate on the total.

IRS doesn’t tax that €30,000 as-is: the pension has its own specific deduction, and the activity income is first reduced by the simplified-regime coefficient (0.75 for most services - so the €12,000 counts as €9,000). But the principle holds: the two are added together, so the year’s tax can be higher than on the pension alone. Worth knowing, so you don’t get a shock in April.

What about withholding tax?

The normal category B rules apply to green receipts. If you expect to invoice less than €15,000/year (the Article 53.º CIVA limit) and didn’t exceed that last year, you can opt for the withholding dispensation (CIRS art. 101.º-B) - it’s your choice, not automatic. If you cross €15,000 during the year, the dispensation ends the following month. And when withholding does apply, it’s the clients with organised accounts (typically companies) who deduct it; private clients never withhold.

Example - Mrs Alice, a retired teacher: she gives private lessons to individuals and invoices around €6,000 a year. She’s well below €15,000 - and since her clients are private individuals, there’s no withholding at all. She adds those €6,000 to her pension in IRS, and since she doesn’t contribute to Social Security, almost everything she invoices stays in her pocket, apart from the IRS.

Warning: the exemption is from Social Security, not IRS. The classic pensioner’s mistake is thinking “I don’t contribute to Social Security, so I pay little tax”. It doesn’t work like that: the green receipts add to the pension in IRS and can push you up a bracket. Before taking on a lot of work in a year, do the combined IRS maths - don’t look only at the part that’s exempt.

✅ In summary

1. You can combine a normal old-age pension with green receipts without cuts to the pension. Exceptions: a pension converted from absolute invalidity doesn’t stack with work, and an early-retirement pension cannot, in its first 3 years, be combined with work (incl. green receipts) for your former employer or group (see above).

2. In Social Security you’re exempt: you pay neither the 21.4% nor file the quarterly declaration, because you receive an old-age pension. But in IRS there’s no exemption - the pension (category H) and the activity (category B) add up and are taxed together, which can push you into a higher bracket. And if you invoice under €15,000/year (this year and last), you can opt for the withholding dispensation.

3. With FIZ you issue the receipts and keep the activity’s income organised for the IRS return, where it joins your pension - no surprises in April. See the plans.