Tax on your pension in 2026/27

Published 2026-10-05, checked against current rates 2026-10-05 by Hadi. How we check figures · Corrections log

Yes, you pay tax on your pension — but not on all of it, and not in the way most people expect. You can normally take 25% of a private pension free of income tax. The rest is taxed exactly like a salary: it goes through the £12,570 personal allowance first, then the normal bands. There is no National Insurance on pension income at all, which is the one genuine break. Figures checked 2026-10-05 against gov.uk.

The State Pension is £22.40 below the tax threshold

The full new State Pension is £241.30 a week, which is £12,547.60 a year. The personal allowance is £12,570. That leaves £22.40 of headroom before a penny of other income is taxed.

Tax on a pension income

Once you are drawing a pension as regular income, the arithmetic is the same as for a wage minus National Insurance. These are the figures people search for most:

Assumes the pension is your only income and a standard tax code. No National Insurance is due on pension income at any age.

Why your first withdrawal is overtaxed

This is the complaint that brings most people to this page. Take £20,000 out of a pot as a one-off: £5,000 is the tax-free quarter and £15,000 is taxable. Your provider almost certainly applies an emergency code on a month-1 basis, which means it gives you one twelfth of the personal allowance — £1,047.50 — and taxes the rest as though you were going to take £15,000 every month for a year.

You get it back. HMRC reconciles it at the end of the tax year automatically, or you can reclaim sooner with form P55 rather than waiting. The tax refund calculator estimates what is owed, and the tax code checker will tell you whether the code on your payslip or pension statement is the culprit.

Paying in: the annual allowance

Going the other way, you can put £60,000 a year into pensions with tax relief, across all schemes, or 100% of your earnings if that is lower. Two things reduce it. A high income tapers it — but only if both your threshold income is over £200,000 and your adjusted income is over £260,000, which is the part most summaries get wrong. And flexibly accessing a pot reduces what you can put back in afterwards.

The tax-free lump sum is capped across your lifetime at £268,275, so the 25% rule holds until total pots reach roughly £1,073,100.

If you are still working, a contribution is also the main lever on adjusted net income, which decides the £100,000 allowance taper and the childcare cliff. The pension sweet spot calculator finds the contribution that lands you just under a threshold, and the pension tax relief calculator shows what relief you actually get at your rate.