Paying Tax in Retirement

Upon reaching State Pension Age, there is no further need to make National Insurance contributions. However, being retired means you still have to pay income tax, and this includes pensions and state pensions if your total exceeds the tax-free allowances.

Should I Be Paying Tax?

  • Add up all taxable income
  • Work out tax-free allowances
  • Deduct tax-free allowances from taxable income

If you should be paying tax in retirement, your pension provider should send details of your new pension direct to HMRC via the electronic PAYE system, and by using your tax code will deduct any tax liable before paying the balance to you. You may get a payslip with each pension payment, if you don’t you should get some sort of notification if there is any change to the amount of pension payment, for example if you tax code changed.

If your taxable income is greater than your tax-free allowances you will have to pay tax. However, if your tax-free allowances are the same as or more than your taxable income, and you do not have to pay tax.

Taxable Income Examples

  • Pension income (including State Pension)
  • Employment/self-employment income if you keep working
  • Almost all bank and building society interest, once over The Personal Savings Allowance
  • Dividends
  • Income from property after expenses excluding the first £7,500 if you rent out a room in your house
  • Income from overseas (overseas pensions have a 10% deduction so you are only taxed on 90% of the total amount)
  • Some benefits, including Carer’s Allowance and, in some cases, Incapacity Benefit

If you are married or in a civil partnership and have income from savings, investments or property held in joint names you’re usually treated as getting half the income each. So you only have to pay tax on your half. If you’re not married or in a civil partnership you count only your share of joint income.

Non-Taxable Income Includes

  • Pension Credit
  • Working Tax Credit and Child Tax Credit
  • Income or interest from an Individual Savings Account (ISA)
  • Interest from National Savings Certificates
  • Interest and bonuses from a Save As You Earn (SAYE) scheme
  • Premium Bond and National Lottery winnings
  • Certain benefits, including Cold Weather Payments, Attendance Allowance, Income Support and Disability Living Allowance
  • Lump sum pension payments

Tax-Free Allowances

  • 25% of your Pension Savings (Pension Commencement Lump Sum PCLS)
    Personal Allowance e.g. £12,500
  • Blind Person’s Allowance
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Contact us

You can also request contact details from the Pension Tracing Service by phone or by post.

The Pension Tracing Service
Telephone: 0800 1223 170
From outside the UK: +44 (0) 1782 389134
Monday to Friday, 9:30 am to 5:00 pm

The Pension Tracing Service
The Lantern
High Street
EX34 9QB

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The Pension Tracing Service ® is a trading style of the Millennial Wealth Ltd. We are authorised and regulated by the Financial Conduct Authority. FCA number 914746. Unit 11Flag Business Exchange Peterborough Cambridgeshire PE1 5TX. The registered company number is 11557299​

This service is not affiliated with the Department of Work and Pensions or any government body. The Pension Tracing Service does not offer financial advice to our clients. However we can allocate you an Authorised and Regulated Pension Specialist.

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