What tax do I pay in retirement?

National Insurance

When you reach state pension age, you automatically stop paying National Insurance, even if you're still in work.

Income tax

You will still have to pay income tax if your taxable income is more than the non-taxable income and tax-free allowances you're eligible for.

Taxable income includes:

  • Your pension income
  • Income from employment
  • Dividends
  • Interest payments
  • Income from property sales
  • Income from abroad
  • Certain benefits

Non-taxable income and tax-free allowances include: 

  • Pension and tax credits
  • Interest from Individual Savings Accounts, National Savings Certificates Personal Equity Plans and Tax Exempt Special Savings Accounts
  • Premium Bond and National Lottery winnings
  • Certain benefits
  • Lump sum pension payments worth up to 25% of your pension pot
  • Your yearly personal allowance

In the 2018/19 tax year, the personal allowance – the amount of income you can receive before being taxed is £11,850.

Pension tax

25% of your pension pot can be withdrawn tax-free. The remainder – withdrawn as an annuity or lump sum – is taxable.

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