Retirement brings with it a lot of change: change to your routine, to your income and changes to the amount of tax you have to pay. Find out how your pensions are taxed and when interest on your savings may be paid tax free.
The basic principle is that you can take 25% out of your pension pot tax free. The remaining pot is used to provide an income or can also be withdrawn; in both cases this is taxable. That means any money you receive over your Personal Allowance will be taxed.
If you have a defined benefit pension (also known as a final salary or career average pension) you can take up to 25% of your pension tax free, but you will be paid the rest as an income, which will be taxable.
Retirement brings with it a lot of change: change to your routine, to your income and changes to the amount of tax you have to pay. Find out how your pensions are taxed and when interest on your savings may be paid tax free.
The basic principle is that you can take 25% out of your pension pot tax free. The remaining pot is used to provide an income or can also be withdrawn; in both cases this is taxable. That means any money you receive over your Personal Allowance will be taxed.
If you have a defined benefit pension (also known as a final salary or career average pension) you can take up to 25% of your pension tax free, but you will be paid the rest as an income, which will be taxable.
You still have to pay Income Tax after you’ve retired. This applies to all your pension income, including the State Pension. Many people assume that their pension income – especially the State Pension - will be tax free, but that’s not the case.
Some income, including your State Pension, is paid without any tax being taken off. But if tax is due, this will often be collected by taking money off any company pension payments or when you take money out of a workplace or personal pension.
When you retire, if you receive an income from several different sources; for example, more than one pension, savings income and earnings from a job, you may be given more than one tax code. Make sure you check the tax code(s) so you know the right amount of tax is deducted.
When you reach State Pension age you no longer pay National Insurance contributions, but you don't automatically stop paying Income Tax. If your taxable income – including your State Pension – is more than your tax-free allowances you'll still have to pay tax.
