How is my pension taxed when I start taking it?

What changes for you

1. A quarter is normally tax free

   Up to 25% of the pot can be taken tax free, subject to the lump sum allowance. The rest is taxed as income in the year you take it, which is why taking a large amount in one year is expensive.

2. The first withdrawal is overtaxed almost every time

   Providers apply an emergency code on a month-1 basis, taxing a single withdrawal as if you would receive it every month. The refund can be claimed straight away rather than waiting until the year end.

3. Taking income triggers a £10,000 contribution limit

   Flexibly accessing a pension brings in the Money Purchase Annual Allowance: £10,000 a year, and no carry-forward. Taking tax-free cash alone does not trigger it; taking income does.

4. The State Pension is taxable but paid gross

   No tax is deducted from it, so the tax on it is collected through your code on other income — which is why a first State Pension payment often makes a private pension look overtaxed.

The decisions this opens up

Each works on your own figures and shows every option with the workings. Free, and no sign-up.

Dates this puts in your diary

• Before taking incomeCheck whether the £10,000 contribution limit matters to you
• Any timeReclaim overpaid emergency tax on a withdrawal — do not wait for the year end

Run the numbers