INCOME TAX & NATIONAL INSURANCE ON PENSIONS

You will stop paying National Insurance contributions when you either:

• reach state pension age, even if you’re still working, unless you are self employed
• stop work and take your private pension before you reach state pension age  

However, if your total income from work, private pensions and the State Pension is more than your tax-free allowance you will still have to pay Income Tax.

Income Tax is deducted from your private pension before it is paid to you, under the Pay As You Earn (PAYE) system.  If you receive any the state pension, you may find that extra Income Tax is deducted from your private pension.  This is because the government will ask your private pension provider to deduct any Income Tax due from your state pension.  Your state pension will effectively be paid tax-free, with excess Income Tax deducted from other pensions. 

Full details of Income Tax and National Insurance after retirement age are available from:

• GOV.UK
• MoneyHelper - A guide to tax in retirement
• MoneyHelper - How is my State pension taxed
• Which?

To calculate whether you should pay income tax, follow this link.

For an explanation of Tax codes and tax forms for pensioners, follow this link.

If you think you are not paying the correct amount of Income Tax or are due a refund, contact your local Tax Office by following this link.

Common Tax Mistakes

Many people are paying the wrong amount of tax. Click here to see the 10 most common Tax mistakes.

Lump Sum payment on retirement

Whether you have a Personal Pension or a Workplace Pension, depending on the size of your pension fund, you are usually able to take part of your pension pot as a tax-free lump sum when you start taking your pension. Your tax-free lump sum cannot be more than 25% of the value of your pension fund. However, taking a lump will reduce the amount of your monthly pension payment.

For current rules governing Lump Sum payments click here.

Taking your Pension early

New pension reforms came into effect on 6 April 2015 giving people over the age of 55 greater access to their pensions pension pot.

From age 55, whatever the size of your pension pot, you will be able to take it how you want, subject to your marginal rate of income tax in that year with 25% of your pot remaining tax-free.

Full details of Income Tax implications of taking your pension before State Pension age are available from MoneyHelper.

Full details of retiring early are available at MAG - TAKING YOUR PENSION EARLY.