When you start receiving a taxed pension, a retirement income stream that’s subject to income tax in the UK. Also known as taxable pension income, it includes payments from workplace pensions, personal pensions, and the State Pension — but not all of it is taxed the same way. The UK doesn’t tax your pension like a regular paycheck. Instead, it uses your Personal Allowance — currently £12,570 for the 2024/25 tax year — as your tax-free buffer. Anything above that? That’s where the tax kicks in. And here’s the thing: most people don’t realize their State Pension counts toward this limit. If you’re getting £9,627 a year from the State Pension and another £5,000 from a private pension, you’ve already hit £14,627. That’s £2,057 over the allowance. You’re paying tax on that part — even if you never touched a pay slip in retirement.
What makes this even trickier is how pension taxation, the process of applying income tax to retirement withdrawals in the UK interacts with other income. If you’re still working part-time or drawing from savings, those earnings stack on top of your pension. HMRC doesn’t care where the money comes from — only how much you’ve got. And if you’re not careful, you can accidentally jump into a higher tax band. For example, if your total income hits £50,270, you start paying 40% on the amount above that threshold. That’s not just on your private pension — it’s on your total taxable income. Many retirees think they’re safe because they’re "not working anymore," but tax doesn’t care about your job title. It cares about your bank balance.
Then there’s the State Pension, the government-provided retirement income based on your National Insurance record. It’s not tax-free, even though some assume it is. If your total income exceeds the Personal Allowance, HMRC will take tax directly from your pension payments — usually through your private pension provider, not the DWP. You might get a tax code like 1257L, which looks normal, but if you’re also getting a private pension, that code might not be enough. You could end up underpaying tax all year, then get a bill in April. Or worse, you might get overtaxed because the system doesn’t know about all your income sources until you file a Self Assessment.
And don’t forget retirement income tax, the total tax burden on all sources of money you receive after retiring. This includes annuity payments, drawdown withdrawals, and even lump sums. Taking a 25% tax-free lump sum from your pension doesn’t mean the rest is safe. The remaining 75% is added to your income for the year. If you take a big chunk all at once, you could push yourself into the 40% or even 45% tax bracket. That’s not a mistake you can undo. Most people don’t realize they can spread withdrawals over multiple years to stay in a lower band. It’s not about when you retire — it’s about how you take the money.
There’s no magic trick to avoid tax on your pension — the rules are clear. But you can control how much you pay. By understanding how your pension fits into your total income, timing your withdrawals, and knowing what counts toward your allowance, you can keep more of what you’ve earned. The posts below break down real cases, common errors, and simple steps people in the UK are using right now to reduce their tax bill. No jargon. No fluff. Just what actually works.
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.
