Income Tax and Pensioners

Author: Josh Hall

When the age has been reached at which the State Pension is granted, a significant proportion of the population choose to retire. It is perfectly understandable that, bearing in mind that the government is giving them money, they would not expect to continue to pay tax. However, Pension Income Is Taxable in the same way as any other form of income.

To understand exactly how much tax you'll pay on your pension income and what you'll have left to live on, you can use our free Income Tax Calculator.

Pension income, whether it is from the State Pension or from a private or employer’s pension scheme, is subject to Income Tax. This can seem like a strange case of the state giving with one hand and taking away with the other, particularly when it is noted that the State Pension is paid to pensioners without tax deductions. This means that the amount that you receive from your State pension will not be the amount that you ultimately benefit from; rather, you have a subsequent responsibility to pay tax on that income.

Employment Status

There are different rules depending on both your employment status and on whether or not you also benefit from a private pension. The most common scenario is that the State Pension is being given to an individual who benefits from no other pension scheme, and is not in employment. In this case, the recipient will be required to fill out a self assessment tax return towards the end of each tax year. If this will be the first time you have been a self assessment tax payer, the process can appear daunting. However, your Tax Office will be able to help; contact them as soon as possible and they will provide you with the necessary forms when the time comes (see our article A Step-By-Step Guide To Completing Your Self Assessment in this section).

If you are benefiting from no other pension than the State Pension, but you are still in employment, then your affairs are much easier to deal with. In these cases, your Tax Office will contact your employer in order to arrange that the tax you must pay on your State Pension be deducted directly from your earned income, through PAYE. This streamlines the process and means that you have no paperwork responsibilities.

Income Tax Calculator

Enter your salary and get a clear breakdown of your income tax, National Insurance, and take-home pay for the 2025/26 tax year. See exactly where your money goes.

Try our Income Tax Calculator free, here on this site →

Your situation may be slightly different. ask a question below ↓ and our editorial team will reply with our advice.

Multiple Pensions

Finally, if you are receiving the State Pension and are also benefiting from a private or employer’s pension scheme, the Tax Office will again attempt to contact the relevant parties in order to minimise your responsibilities. In these cases, your tax will be deducted from your other pension income, through your pension provider’s own PAYE scheme. If you notice that your private pension payments are lower than usual, this may well be the reason.

If you only receive one private pension, then the entire tax bill will come from this single source. If, on the other hand, you are benefiting from a number of different pension schemes, your Tax Office may have to split the payments across a number of different sources. In practice, however, the majority of people in this situation find that one of their pensions is taxed heavily while the others are untouched. Again, if you are a multiple pension recipient, you will not be required to fill out a self assessment tax return.

The Next Step

Now that you have read through the advice above, you might want to put it into practice. Our Income Tax Calculator lets you enter your salary and get a clear breakdown of your income tax, National Insurance, and take-home pay for the 2025/26 tax year. See exactly where your money goes. Try it now →

16 questions

Ask The Tax Guide a Question

piere 02/02/2016 at 1:39 pm

I have an aunt in her 80s, she has loaned a family member some money. They are now paying this back by by direct debit into her account, this will take up to five years to repay the loan. Will she have to declare this and will it be classed as income.

TheTaxGuide Editor 26/02/2015 at 10:32 am

@. You should not have to pay any income tax if your pension is your only income and is below your taxable allowance. I hope this helps.

- 24/02/2015 at 8:53 am

I am receiving state pension, and have no other income at all. Is it possible to arrange to have my pension taxed at source, just receiving the net amount?

she 31/10/2014 at 7:00 pm

I am 64 years old, a widow and severely disabled ( in a power chair) I receive state pension £320 a fortnight. I also have two small work pensions. These are being taxed heavily. The larger of the two pensions was £124 a month. After my tax code was changed to 70T/C £61.20 was taken from my pension this month (Oct 14) I have seen my income slashed so now my total monthly income has gone down by £336 a month
I was informed that my income was too high for pension credit, but in view of these tax changes and the cut in my income would I be eligible for pension credit. Who can I talk to to get 'safe' advice.

TheTaxGuide Editor 21/10/2014 at 11:45 am

@Jack You will get a bigger Personal Allowance if your income’s below £27,000. You may also be able to claim Married Couple’s Allowance to reduce your tax bill. If you earn £0 to £26,99 you will have a personal allowance of £10,660. £27,000 to £28,320 you will get between £10,660 and £10,000. Your allowance (£10,660) goes down by £1 for every £2 that your adjusted net income’s over £27,000. If you earn £28,321 to £100,000, your allowance will be £10,000. If your income’s over £100,000 your Personal Allowance goes down by £1 for every £2 that your adjusted net income’s above £100,000. This means your allowance is zero if your income’s £120,000 or above. I hope this helps.

Jack 21/10/2014 at 8:26 am

In simple terms please I am 83years of age how much income, including
Investments, can I receive before paying taxpayers

Roeey 26/08/2014 at 4:38 pm

I am claiming state pension but I do some occasional part-time work through an agency. I have been given a K tax code which the tax office says means that they can (and do) take 50% in tax from my earnings and that I could, potentially, owe the HMRC more tax at the end of the financial year. 50% tax - seems wrong to me?

tommy 10/01/2014 at 4:32 pm

i have reached 80 will i still have to pay tax on savings?

dave1212 14/10/2013 at 6:40 pm

ive recently has had my first pension paid but i have noticed that my tax code is different i paid - £244 on my salary and my tax code is now 187L why????

Ned 03/03/2013 at 9:02 pm

Pensioner aged 77. State pension and other pensions Total £31,000. No other benefits.
What is the Personal Tax Allowance?
What Tax is payable 2013/14 please?

Clarky 03/12/2012 at 12:08 pm

When I retire my personal pension provider has an option whereby the annuity is paid 50% to my wife and 50% to myself and the sums involved are calculated accordingly based on our respective ages, lifestyles, medical conditions etc etc. I assume my wife will receive her sum and I will separately receive my sum. Is this how it will work and does this mean that my wife's pension income will be taxed after her own personal allowances and my pension income taxed after my own personal allowances?

P 29/10/2012 at 9:25 pm

I am currently in full time employment earning £15,000 pa and therefore taxed at 20% base rate for the amount over and above my personal allowance of approx £8,100. I also receive £3,400 pa from 2 small occupational pensions which recently matured and which are currently being taxed at source, again at 20% base rate.

In a year's time I will be 61 and will qualify for my state pension which has been forecasted to be approx. £7,100. At this point my total earnings will be £25,500 should I continue to work.

Am I correct in saying that I will be taxed on the same basis - i.e. 20% base rate on a figure of approx £17,400 (£25,500 minus £8,100 personal allowance)?

Also would this taxation be split between the various sources of income or just one source?

I believe also that at this point I would cease to pay National Insurance.

Jane 12/03/2012 at 4:01 pm

If you're at or approaching State Pension age or you're a woman approaching age 65, use form P161 Pension Coding to tell HMRC about your income. This will help them work out if age-related tax allowances are due to you. If you don't fill in this form you could pay too much tax. You can download the form from the HMRC website.

Febrauarybell 12/03/2012 at 3:39 pm

I will be 65 in february 2013.The wording on the HMRC website,suggests to me that anyone reaching 65 in that tax year (2012/2013 in this case) is eligible to the age related tax allowance from April 2013.however I have received my new tax code for that year,and have only been allowed the normal personal allowance of £8105.Am I misreading the information?

DO NOT HAVE 18/04/2011 at 10:00 am

As a pensioner advice was given to INVEST any money which I had, as investments where non taxable. Only savings gaining interest are taxable and as my total income is less than Tax allowance I'm declared as a non Tax payer? Is this correct advice - given by two different banks.

Paul 22/03/2011 at 9:00 pm

A pensioner's personal tax-free allowance is reduced by £1 for every £2 earned in excess of 24k and the remainder is subject to normal tax rules. This means that a pensioner's income, over 24K, is effectively being taxed at 60, or even 70, percent. It would have been useful for this page to have had some advice for people in this position.

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