Retirement & Tax

What Retirement Income Is Taxable?

Most retirement income is subject to Income Tax:^[1]

State Pension — fully taxable (but paid gross, with no tax deducted)^[2]
Workplace and personal pensions — taxable (except the 25% tax-free lump sum)
Annuity income — taxable
Pension drawdown income — taxable

The 25% Tax-Free Lump Sum

You can normally take 25% of your pension pot as a tax-free lump sum (up to a maximum of £268,275). The remaining 75% is taxed as income when you withdraw it.^[3]

How State Pension Is Taxed

The State Pension counts towards your taxable income but is paid without tax deducted. If it’s your only income, it falls within the Personal Allowance and you pay no tax. If you have other income, HMRC adjusts your tax code so the tax is collected from your other pension or employment.^[2]

Full State Pension (2026/27): £12,548 per year. This is just below the Personal Allowance of £12,570, so if it’s your only income, you won’t pay tax.

Tax on Multiple Pensions

If you receive income from several pensions, HMRC splits your Personal Allowance across them using different tax codes. Check your codes carefully — errors are common when you have multiple pension sources.^[4]

Pension Flexibility

Since 2015, you can access your defined contribution pension flexibly from age 55 (rising to 57 in 2028). Options include:^[1]

Lump sums — take out chunks as needed (25% tax-free element each time)
Drawdown — regular income from your invested pot
Annuity — guaranteed income for life
Cash out entirely — 25% tax-free, rest taxed (may push you into higher bands)

Do Retirees Need Self Assessment?

You may need to file a Self Assessment return in retirement if:^[5]

Your total income exceeds £150,000
You have untaxed income (rental income, savings above allowances)
You have capital gains to report
You need to pay the High Income Child Benefit Charge

Frequently Asked Questions

Do I pay Income Tax in retirement?

Yes. Most retirement income is taxable, including the State Pension, workplace and personal pensions, annuity income, and pension drawdown. However, you still receive your £12,570 Personal Allowance.

How much pension can I take tax-free?

You can normally take 25% of your pension pot as a tax-free lump sum, up to a maximum of £268,275. The remaining 75% is taxed as income at your marginal rate.

Is the State Pension below the Personal Allowance?

The full new State Pension is around £12,548 per year, which is below the £12,570 Personal Allowance. If it is your only income, you will not pay any Income Tax.

Do retirees need to file a Self Assessment tax return?

You may need to file if your total income exceeds £150,000, you have untaxed income such as rental income, you have capital gains to report, or HMRC asks you to file.

Sources

Tax on your private pension contributions — GOV.UK
Tax on the State Pension — GOV.UK
Pension lump sums — GOV.UK
Income Tax rates and Personal Allowances — GOV.UK
Self Assessment tax returns — GOV.UK