Tax and your pension
While all pensions are subject to tax deductions, the amount of tax you pay in your retirement depends on your personal circumstances and any other income you might have.
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With this in mind, it’s good to know what can affect tax and what you can do to keep it under control.
Factors that affect tax
The size of your pension income
If your total annual income is more than your Personal Allowance (for most people this is currently £12,570), you’ll pay tax on your pension. To learn more, visit HMRC.
Your pension lump sum
You’re allowed to take up to 25 per cent of your pension as a tax-free lump sum, depending on your circumstances. This is something to think about, when considering your future finances.
Re-employment
If you take up a new job, you will pay tax on your earnings – just as you did before you retired. So it’s always good to let us know if you do take up any relevant re-employment, as this could impact your pension.
Moving abroad
Overseas tax laws can affect your pension options (such as if you haven’t yet taken your tax-free lump sum). You can learn more about tax and what to consider when spending your retirement overseas in our article, Are you thinking of moving abroad?
Tax facts
Did you know?
Research from the Pensions Policy Institute (PPI) shows people can end up paying up to 200 times more tax than they need to, depending on their retirement choices.
Claiming tax allowances
Depending on your circumstances, there are times where you might be able to claim allowances on your pension to help reduce your tax.
For example, if you’re married or in a civil partnership, you could claim marriage allowance to help reduce your tax by as much as £252 a year. To find out more, visit the Income tax page on GOV.UK.
Paying the right tax
To make sure you are paying the right tax, it’s worth contacting HMRC. This is especially important if you have income from more than one source, like a job with another employer.
Getting tax help and advice
While, at LPPA, we can’t offer advice on tax, there are plenty of organisations that do. Here are some links that might come in useful.
- HMRC – For tax queries, phone 0300 200 3000.
- MoneyHelper
It’s also wise to get professional tax advice from an independent financial advisor (IFA). You can visit the Financial Advisor Bureau, or websites like unbiased.co.uk, to find an IFA that’s suitable, nearest to you and registered by the Financial Conduct Authority (FCA).
Alternatively, the charity, Tax Help for Older People offers free, independent and expert help and advice to those you can’t afford to pay for one.
