Last updated: 14 October 2026
Why are you paying tax on your pension?
Pension income is taxable, just like a salary. The State Pension, workplace pensions, personal pension income and annuities all count towards your income for the year. In 2026/27, the full new State Pension is £241.30 a week, about £12,548 a year, which uses almost all of the £12,570 Personal Allowance. So if you also have a private pension, most of it is taxed at 20% or more. Tax on private pensions is taken through PAYE by the provider, and HMRC often takes the tax due on the State Pension through the same tax code.
How pension income is taxed
| Pension | How tax is collected |
| State Pension | Paid gross; tax collected through your tax code on another pension or job, or by Simple Assessment |
| Workplace or personal pension income | PAYE by the provider |
| Annuity | PAYE by the annuity provider |
| 25% tax-free lump sum | Tax-free, up to the £268,275 lump sum allowance |
| Flexible withdrawal (UFPLS or drawdown) | 25% tax-free, 75% taxable |
Why your tax code may look wrong
- State Pension deduction: HMRC reduces the allowance on your private pension code to collect tax on your State Pension, so your code may be much lower than 1257L.
- Emergency tax on a first withdrawal: the first flexible payment is often taxed on a month 1 basis, so too much is deducted.
- Two pensions: your allowance is usually given against one, and the other is taxed at 20% under code BR.
- Untaxed interest: savings interest may be collected through your code.
Example
Margaret gets the full new State Pension of about £12,548 and a £9,000 workplace pension. Her total income is £21,548. After her £12,570 allowance, £8,978 is taxable at 20%, which is £1,796. HMRC gives her a tax code of around 2L on the workplace pension, so almost all of the £9,000 is taxed. It looks high, but it’s correct, because her State Pension uses her allowance.
Reclaiming emergency tax
If you’ve taken a one-off pension withdrawal and paid too much tax, you can claim it back in the same tax year with forms P55, P53Z or P50Z, depending on your situation. Otherwise, HMRC refunds the overpayment after the end of the year.
State Pension and the Personal Allowance
With the Personal Allowance frozen at £12,570 until April 2031 and the State Pension rising each year under the triple lock, the full new State Pension is close to the allowance. People whose only income is the full new or basic State Pension don’t pay income tax in 2026/27. The government has also said that, from 2027/28, they won’t have to pay small amounts through Simple Assessment, with details still to be published.
Deferring your State Pension
If you put off claiming, your State Pension increases when you take it, and the extra is taxable too. Deferring can make sense if you’re still working and paying higher-rate tax now.
Frequently asked questions
Is the State Pension paid with tax deducted?
No, it’s paid in full; tax is collected elsewhere.
Can I reduce tax on my pension?
Spread withdrawals across tax years, and claim Marriage Allowance if eligible.
Is a pension lump sum taxable?
25% is usually tax-free; the rest is taxable.
Who do I contact about my code?
HMRC, not your pension provider.
Related: Married Couple’s Allowance transfers, Baroness Altmann’s warning on pensioners’ tax and the 25% tax-free cash after withdrawals.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with pension income tax. See our small business accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
