Calculate Your Pension Tax
How Pension Tax Works
When you withdraw money from your pension pot, the first 25% is usually tax-free (known as your pension commencement lump sum). The remaining 75% is subject to income tax at your marginal rate.
UK Income Tax Bands 2025/26
| Tax Band |
Taxable Income |
Tax Rate |
| Personal Allowance |
Up to £12,570 |
0% |
| Basic Rate |
£12,571 – £50,270 |
20% |
| Higher Rate |
£50,271 – £125,140 |
40% |
| Additional Rate |
Over £125,140 |
45% |
Important: Large pension withdrawals can push you into higher tax bands, significantly increasing your tax bill. Consider spreading withdrawals over multiple tax years to minimise tax.
Types of Pension Withdrawals
Pension Commencement Lump Sum: Up to 25% of your pension pot can be taken tax-free. This is a one-time opportunity per pension scheme.
Uncrystallised Funds Pension Lump Sum (UFPLS): Allows flexible access to your pension pot without setting up drawdown. Each payment consists of 25% tax-free and 75% taxable.
Income Drawdown: After taking your tax-free lump sum, you can leave the remainder invested and draw income as needed. All income is taxable.
Tax Planning Tips:
- Consider your total income including state pension and other sources
- Spread large withdrawals across multiple tax years
- Time withdrawals to avoid breaching higher tax thresholds
- Consider phased retirement to manage tax liability
Emergency Tax on Pension Withdrawals
When you first withdraw from your pension, you may be subject to emergency tax. This typically applies the basic rate tax code (1257L for 2025/26), assuming you have no other income. If too much tax is deducted, you can claim a refund from HMRC.
Money Purchase Annual Allowance
Once you start taking flexible benefits from your pension, your annual contribution allowance may reduce to £10,000. This affects how much you can contribute to pensions whilst receiving tax relief.
Frequently Asked Questions
When can I access my pension?
You can normally access your private pension from age 55 (rising to 57 from April 2028). Some schemes have protected lower retirement ages.
How much tax-free cash can I take?
You can typically take up to 25% of your pension pot tax-free, subject to the lump sum allowance of £268,275 (2025/26). This applies to most defined contribution pensions.
What happens if I take my entire pension as cash?
Taking your entire pension as cash will likely result in a significant tax bill, as only 25% is tax-free. The remaining 75% is added to your income for that tax year and taxed accordingly.
Can I reduce my pension tax bill?
Yes, by spreading withdrawals across multiple tax years, timing withdrawals when you have lower income, or considering phased retirement to stay within lower tax bands.
Do I pay National Insurance on pension income?
No, pension income is not subject to National Insurance contributions, regardless of your age when you receive it.
What is the difference between standard rate and emergency tax?
Emergency tax is applied when HMRC doesn’t have your complete tax information, often resulting in higher initial deductions. Standard rate tax considers your full annual income. You can reclaim overpaid emergency tax.
References
HM Revenue and Customs. (2025). Pension schemes rates. GOV.UK. Available at: https://www.gov.uk/government/publications/rates-and-allowances-pension-schemes/pension-schemes-rates
HM Revenue and Customs. (2024). Tax on your private pension: What’s taxed. GOV.UK. Available at: https://www.gov.uk/tax-on-pension
Legal & General. (2025). What tax will I pay on my pension pot? Available at: https://www.legalandgeneral.com/retirement/pensions/tax/what-tax-will-i-pay-on-my-pension-pot/
Aviva. (2025). Pension withdrawal tax calculator. Available at: https://www.direct.aviva.co.uk/myfuture/PensionWithdrawalTaxCalculator
Aberdeen Adviser. (2025). Tapered annual allowance – adjusted income and threshold income. Techzone. Available at: https://techzone.aberdeenadviser.com/public/pensions/calc-tapered-annual-allowance
