Non-State Pension Tax

While you are saving for your pension you will be able to take advantage of the tax rules that prevent you from having to pay tax on money you are saving for your retirement. Your pension savings may be subject to taxation if you have exceeded those government limits that dictate the amount you are allowed to save for retirement without being required to pay tax. There is an annual limit on the amount you are allowed to save for your retirement and a lifetime limit. Exceeding these limits may result in taxation rates of up to fifty-five percent. For more information on pension savings taxation, see Non-State Pension Saving Limits.

When you retire and come to draw your pension, you will remain a taxpayer unless your income is low enough to prevent you needing to pay any taxes at all. You will be required to pay Income Tax on any taxable income that exceeds your personal income allowance. Your state and non-state pensions both count towards your taxable income. If you choose to take a part of your pension fund as a lump sum, this will be tax-free. Any remaining pension fund that you receive as a pension will be subject to income tax. The rate of income tax you pay will depend on the amount of income you have in retirement. For detailed information on paying income tax on your pension see Tax on Pension Income, State Pension Tax and Income Tax and Non-State Pensions. You may also be able to take your entire pension as a lump sum if the total fund is small. This is known as a trivial commutation and you will receive one quarter of the pension fund tax-free but pay income tax on the remaining seventy-five percent. For more information see 'Trivial' Pension Funds.

If you continue to work when you are over State Pension age (see State Pension Age) your income will continue to be taxed, unless you are earning only a minimal amount. You will pay taxes automatically out of your salary, through the PAYE scheme. For more information on this scheme, and salary taxation during retirement, see Earning over age sixty-five.