Do you pay tax on your pension?

Do I pay income tax on my pension income?

As a worker, you typically pay up to 12% in national insurance on your earnings over your work life. However, things become a bit more complicated once you retire.

You still pay income tax on your pension income, whether it's from a state pension, private pension, or workplace pension. You can get up to £12,570 of income each year tax-free, which is your "personal allowance." Anything between £12,571 and £50,270 is taxed at 20%, while anything between £50,271 and £125,140 falls into the higher-rate tax bracket and is taxed at 40%. Income above £125,140 is taxed at 45%.

What about national insurance contributions?

The good news is that you don't need to pay any national insurance contributions on the money you receive from your pension.

National insurance is a tax on earnings that employees, employers, and self-employed workers pay.

If you're an employee, you start paying national insurance when you earn more than £242 a week. You pay 12% of your weekly earnings between £242 and £967, and 2% of your weekly earnings above this.

If you're self-employed, you pay £3.45 a week, and then 9% on your yearly profits between £12,570 and £50,270 and 2% on profits above this.

National insurance contributions build up your entitlement to certain benefits, such as the state pension and maternity allowance.

Are there any tax reliefs or allowances as a pensioner when it comes to tax?

You get 25% of your pension tax-free, which you can take as a lump sum or gradually withdraw as an income. You usually don't need to pay any tax on your state pension, as it's paid "gross" (before tax) every four weeks. Your pension provider will normally take off any tax you owe before they pay you.

However, if you have any other income, you'll need to fill out a self-assessment tax return and pay tax on it yourself.