How the State Pension works

Your State Pension is paid to you before any tax is taken off (this is known as being paid gross). The amount you can earn tax-free each year, known as your personal allowance, is £12,570 in the 2021/22 tax year, meaning that if the State Pension is your only source of income, you won’t have to pay any tax on it.

However, if you have other income coming in, perhaps from an employer or from other pensions, and this income is more than your personal allowance, you’re liable to pay income tax on any amount above the allowance. Different rates of income tax apply depending on the type of income and how much it is.

Either your employer or pension provider will need to take income tax off the amount they pay you, as well as any tax due on your State Pension. They’ll usually pay this to the taxman on your behalf. If you’re not working, but have pensions from more than one provider, such as a personal pension and a workplace pension, HMRC will ask one of these providers to deduct tax due on your State Pension.

If you plan to keep working beyond your State Pension age, then the tax impact of claiming your state pension, alongside receiving other paid income, may be a factor worth considering when making a decision on whether or not to defer taking your State Pension.

You can find out more about how your State Pension is taxed from the Pensions Advisory Service.

Author: wpadmin

Leave a Reply

Your email address will not be published.