How am I taxed during retirement?

The amount you are taxed when you retire depends on a variety of factors. Firstly, if you decide to withdraw all or some of your pension pot, 25% is usually tax-free (either on whole pot withdrawals, smaller withdrawals or income payments). 

The remainder – whether it's withdrawn as a lump-sum or income – will be taxed at your marginal tax rate, if your overall income exceeds your personal allowance (£11,850 in the 2018-19 tax year). 

Your overall income includes: 

  • The State Pension
  • Earnings from employment
  • Taxable benefits
  • Investment, property or savings income
  • Occupational pension scheme income
  • Private pension income
  • Any other income

Tax is usually deducted by your pension provider before you're paid from a pension pot (including HMRC, in the case of the State Pension).

If you decide to continue working, your employer will deduct tax via Pay As You Earn (PAYE), while you are responsible for making any tax payments if you're self-employed or receive income from sources such as investments or savings. You do not pay National Insurance contributions after you reach State Pension age.

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