When you start drawing your pension, a regular income you receive after retirement, often from workplace schemes, the state, or personal savings. Also known as retirement income, it’s one of the most important financial lifelines you’ll ever have. But here’s the catch: not all of it is yours to keep. The UK government takes a cut—pension tax—and how much depends on how you take it, how much you’ve saved, and your total income. Many people assume their pension is tax-free, but that’s not true. Even your State Pension can be taxed if your total income crosses the personal allowance threshold.
There are different types of pensions, and each has different tax rules. Your State Pension, the government-backed weekly payment you get after reaching state pension age. Also known as basic state pension, it’s taxable but usually doesn’t push you into a tax bracket unless you have other income. Then there’s your workplace pension, a retirement plan set up by your employer, often with contributions from both you and your boss. Also known as defined contribution pension, it’s funded with pre-tax money, so you pay income tax when you withdraw it. And if you’ve built up a personal pension, a private savings plan you manage yourself, like a SIPP or ISA-based pension. Also known as self-invested personal pension, it offers flexibility but comes with strict tax limits. The key is understanding how much you can take tax-free—usually 25% of your pot—and how the rest gets taxed as income. If you pull out too much too soon, you could jump into a higher tax band and lose nearly half to tax.
Pension tax isn’t just about what you pay now—it affects your future too. Taking money out early can reduce your lifetime allowance, trigger the money purchase annual allowance, or even impact means-tested benefits like Pension Credit. And if you’re still working while drawing a pension, your total income could push you into a higher tax bracket. That’s why planning matters. Most people don’t realize that pension tax rules change every year, and small moves—like spreading withdrawals or delaying your State Pension—can save you thousands.
What you’ll find below are real, practical breakdowns of how pension tax works in the UK. You’ll see how much people actually get after tax, what happens when you cash in your pension pot, and how to avoid costly mistakes that drain your retirement savings. No theory. No fluff. Just what you need to know to keep more of what you’ve earned.
In New Zealand, Superannuation and KiwiSaver withdrawals are tax-free, but other retirement income like dividends or foreign pensions may be taxed. Know what counts as taxable income in retirement.
