Income tax and National Insurance
How much tax will I pay on my pension? A 2026/27 example
Figures correct for the 2026/27 tax year. Last checked against GOV.UK, HMRC and MoneyHelper on .
Information, not financial advice. Life Cashflow is not authorised by the FCA.
Short answer
How is pension income taxed in the UK, and how much tax will I pay on my pension?
Pension income is taxed as income above the personal allowance, £12,570 in 2026/27, and up to 25% of a pension can usually be taken tax-free. In Nicky's invented example, the £12,548 State Pension uses almost all the allowance, so £14,978 of the £15,000 taxable part of a £20,000 withdrawal is taxed at 20%: £2,996 of income tax.
Open this example in the planner.In this example, Nicky is 67, gets the full State Pension of £12,548 and takes £20,000 from a personal pension in 2026/27, a quarter of it tax-free. The State Pension uses all but £22 of the £12,570 personal allowance, so £14,978 of the £15,000 taxable part of the withdrawal is taxed at 20%: income tax of £2,996. Nicky is an invented example, and the year detail is an illustration of the planner's arithmetic, not a forecast.
Assumes 2.5% inflation a year and steady growth of 5% a year on pensions and ISAs, and 3% on the home, before charges. Tax rules are those for 2026/27 and later years as now legislated, and can change. Real returns vary, and the value of investments can go down as well as up.
Open this example in the plannerDownload Nicky's example plan (a JSON file: in the planner, choose File, then Open a saved file)
Key facts
- The State Pension is taxable income but is paid without tax taken off; tax due on it is usually collected through the tax code on a private pension or job.
- Income tax is charged on taxable income above the personal allowance, £12,570 in 2026/27, at 20% up to £50,270 in England, Wales and Northern Ireland.
- Up to 25% of a pension can usually be taken tax-free, up to £268,275 in total for most people, and the rest is taxed as income in the year it is paid.
- The full new State Pension is £241.30 a week in 2026/27, £12,547.60 over the year, just under the personal allowance.
- The personal allowance and the basic rate limit are frozen until 5 April 2031.
- Employees stop paying Class 1 National Insurance at State Pension age, and the planner charges no National Insurance on pension income.
Pension income is taxed in the same way as other income. The State Pension, the taxable part of private pension withdrawals and any other income are added up for the tax year, the personal allowance is taken off, and income tax is charged on the rest at that year's rates. Up to 25% of a pension can usually be taken tax-free.
Is the State Pension taxable?
Yes. The State Pension counts as taxable income, but it is paid without tax taken off. GOV.UK explains that someone who also gets a private pension or works usually pays more tax on that income to cover the tax on the State Pension, through a change to their tax code. If the State Pension is the only income and it goes over the personal allowance, HMRC sends a Simple Assessment tax bill.
The full new State Pension is £241.30 a week in 2026/27, or £12,547.60 over the year, which is £22.40 less than the £12,570 personal allowance. The allowance is frozen until 5 April 2031, while the State Pension rises each year by the highest of earnings growth, price inflation and 2.5%.
How are pension withdrawals taxed?
Up to 25% of a pension can usually be taken tax-free, up to £268,275 in total for most people, and the rest is taxed as income in the tax year it is paid. The tax-free part does not affect the personal allowance. Pension providers usually take tax off through PAYE before they pay, using a tax code from HMRC, and a large withdrawal can move income into a higher band for that year.
The tax-free part can be taken in different ways, such as all at once with the rest taxed later, or as a quarter of each withdrawal. What is the Lump Sum Allowance? explains the limit, and pension drawdown, tax-free cash and the State Pension the three ways the planner can take it. The 60% tax trap shows how a large one-off withdrawal can take income over £100,000, where the personal allowance starts to be withdrawn.
What are the income tax rates on pension income in 2026/27?
Pension income is taxed at the same rates as earnings. These are the bands for England, Wales and Northern Ireland. Scotland has its own bands for income other than savings and dividends, listed in UK tax rates and allowances 2026/27.
| Personal allowance | £12,570 |
|---|---|
| Allowance reduced above income of | £100,000 |
| Marriage Allowance transfer | £1,260 |
| Basic rate | 20% on the first £37,700 |
| Higher rate | 40% from £37,700 to £125,140 |
| Additional rate | 45% above £125,140 |
What does the example show?
Nicky is an invented example: 67, retired, getting the full State Pension, and taking £20,000 a year from a £400,000 personal pension, with a quarter of each withdrawal tax-free.
| In Nicky's example, 2026/27 | Amount |
|---|---|
| State Pension | £12,548 |
| Taken from the pension | £20,000 |
| of which tax-free | £5,000 |
| of which taxable | £15,000 |
| Personal allowance | £12,570 |
| Taxable income | £14,978 |
| Income tax, all at 20% | £2,996 |
| National Insurance | None |
The State Pension uses all but £22 of Nicky's personal allowance, so nearly all the taxable part of the withdrawal is taxed at the basic rate of 20%.
In later years the planner assumes the State Pension and the withdrawal rise with inflation, while the personal allowance and the basic rate limit stay frozen until 5 April 2031. Nicky's income tax rises from £2,996 in 2026/27 to £3,232 in 2030/31, in today's prices, and is level after that, with every year in the basic rate band. These are assumptions about future increases, and tax rules can change.
What this looks like in the planner
The picture at the top of this page is Nicky's year detail on the Tax view for 2026/27: income by source, the personal allowance, taxable income and the tax by band. Above it on the same view, the chart of tax paid each year shows the rise to 2030/31 and the basic rate band in every year.
Open this example in the planner.In this example, Nicky pays £2,996 of income tax in 2026/27 and £3,232 in 2030/31, in today's prices, with every year in the basic rate band. The personal allowance and basic rate limit are frozen until 5 April 2031, while the State Pension and the withdrawals are assumed to rise with inflation, so the tax rises in today's prices until then and is level after. Nicky is an invented example, and the chart is an illustration of the planner's arithmetic, not a forecast.
Assumes 2.5% inflation a year and steady growth of 5% a year on pensions and ISAs, and 3% on the home, before charges. Tax rules are those for 2026/27 and later years as now legislated, and can change. Real returns vary, and the value of investments can go down as well as up.
Open this example in the plannerDownload Nicky's example plan (a JSON file: in the planner, choose File, then Open a saved file)
Open Nicky's example on the Tax view, and choose another year to see its working. The example is invented, and its growth rates are assumptions: real returns vary, and the value of investments can go down as well as up.
What does the planner leave out here?
- Tax codes and PAYE. The planner works out the tax due for each whole tax year. Tax codes, emergency tax codes, the tax taken from each payment and refunds are not modelled.
- How tax on the State Pension is collected. The planner counts the State Pension as income, but does not show whether the tax on it is collected through a tax code or a Simple Assessment bill.
- Other allowances and benefits. The Blind Person's Allowance, Pension Credit and other benefits are not modelled.
- Where the taxpayer lives. Scottish income tax applies only when a person is set as a Scottish taxpayer, and Welsh income tax is treated as the same as England's because the rates are currently the same.
What the planner simplifies or leaves out lists the rest.
Where can I get free guidance about tax on a pension?
GOV.UK's guide to tax when you get a pension links to an HMRC tool that checks whether you need to pay tax on your pension, and GOV.UK explains how to claim back tax taken from a pension payment. MoneyHelper gives free, impartial guidance on money and pensions, and Pension Wise offers free guidance appointments about defined contribution pension options to people aged 50 or over. Personal advice comes from a regulated financial adviser, usually for a fee; financial guidance and advice explains the difference.
Change the inputs to your own in the planner to see the same working for your own income, tax year by tax year. The planner simplifies some things, and what the planner simplifies or leaves out lists them.
Change the inputs to your own in the planner to see the tax on your own pensions and State Pension, year by year.
Open the plannerFrequently asked questions
Is the State Pension taxable?
Yes. The State Pension counts as taxable income, but it is paid without tax taken off. If someone also has a private pension or a job, the tax due on the State Pension is usually collected through the tax code on that income. If the State Pension is someone's only income and it goes over the personal allowance, HMRC sends a Simple Assessment tax bill.
How much tax will I pay on my pension?
It depends on total taxable income for the tax year, with pensions, the State Pension, earnings and other income added together. In 2026/27 the first £12,570 is covered by the personal allowance for most people, then income tax is 20% up to £50,270, 40% up to £125,140 and 45% above that, with different bands in Scotland. Up to 25% of a pension can usually be taken tax-free.
Do you pay tax on pension withdrawals?
Usually up to 25% of a pension can be taken tax-free, up to £268,275 in total for most people, and the rest is taxed as income in the tax year it is paid. The tax-free part does not affect the personal allowance. A large withdrawal can move income into a higher band for that year, and pension providers usually take the tax off before they pay.
Can I claim back tax taken from a pension withdrawal?
If too much tax was taken, yes. GOV.UK's service to check how to claim a tax refund on a pension covers taking all of a pension after stopping work, a small pension lump sum, flexibly accessing some or all of a pension, and annuity income. The planner works out the tax due for each whole tax year, not the tax taken from each payment.
Do pensioners pay National Insurance?
Employees stop paying Class 1 National Insurance when they reach State Pension age, and self-employed people stop paying Class 4 from the 6 April after it. GOV.UK describes National Insurance as paid by employees on earnings above a threshold and by the self-employed on profits above one. In the planner, pension income has no National Insurance.
Try this example in the planner
Nicky's example opens on the Tax view for 2026/27, with the year's working for the State Pension and £20,000 taken from a pension. Choosing another year shows how the tax changes while thresholds are frozen.
The example is invented. It opens as a scenario of its own that you can change, and anything of yours that is open stays as it is.
Download Nicky's example plan as a JSON file, and open it in the planner with File, then Open a saved file.
Sources
Checked against these sources on , for the 2026/27 tax year.
- Tax when you get a pension (GOV.UK) (opens in a new tab) (gov.uk)
- Income Tax rates and Personal Allowances (GOV.UK) (opens in a new tab) (gov.uk)
- Maintaining Income Tax and equivalent National Insurance contributions thresholds until 5 April 2031 (HMRC, GOV.UK) (opens in a new tab) (gov.uk)
- The new State Pension: what you'll get (GOV.UK) (opens in a new tab) (gov.uk)
- Check how to claim a tax refund on your pension (GOV.UK) (opens in a new tab) (gov.uk)
- National Insurance: introduction (GOV.UK) (opens in a new tab) (gov.uk)
- Scottish Income Tax (GOV.UK) (opens in a new tab) (gov.uk)
- Pension Wise (MoneyHelper) (opens in a new tab) (moneyhelper.org.uk)