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How much tax will I pay when I withdraw my pension?

How much tax you pay when you access your pension will depend on the way you withdraw your savings and your own personal circumstances at the time.

Tax-free cash

You can generally withdraw the first 25% of your pension as a tax-free lump sum.


You might decide that you want to take a fixed or flexible regular income from your pension, whilst leaving some or all of it invested to maximise growth on your savings. You may want to take all your tax-free cash in one go, or you might want to take it in stages. After taking your tax free cash, the remaining 75% will be subject to tax. What amount of tax will depend on what income you’re receiving and how much it takes you over your personal allowance and therefore which tax band you fall into.

Lump sums

If you take regular or occasional lump sums from your plan the first 25% of each lump sum will be tax free, and the remaining 75% will be subject to tax, depending on your circumstances and any other income you’re receiving at the time.

Full pot

When you cash in your entire pension pot in one go, the first 25% is tax free, and the remainder is subject to tax. It could also be emergency taxed by your provider, but you can claim back any overpaid tax direct from HMRC relatively quickly.


With an annuity, the first 25% is paid out tax free, and the remaining savings pot is used to purchase an annuity. This is a guaranteed fixed income for a set period of time or for life. The income you receive from this annuity is subject to tax. Again, the amount of tax deducted will depend on your specific circumstances during your retirement.

Pension scams

Please be wary of any companies that offer to help you access your pension before your retirement age. Accessing your savings before your retirement date will cause a large tax charge from HMRC.

How is the tax deducted?

Your provider will deduct the tax from your payments and pay it to HMRC. When they process your request, HMRC might be able to provide them with an exact tax code, or they may have to use a temporary tax code to make the payment. They’ll also provide you with full details of the payment and what has been sent to HMRC.

If you’re receiving regular payments from drawdown or an annuity then they’ll be made on a PAYE basis, a bit like how you receive payments from an employer. You’ll get a P60 each year confirming how much you’ve been paid and what tax has been deducted.

Will my state pension be taxed?

The amount you receive as part of your state pension will not have any deductions taken for tax, but the income you receive does count towards your overall annual allowance, and so will reduce the amount you can take from your other pensions before you’re liable for income tax.

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