How much income tax will you pay in retirement?

Pension income is taxed like a salary: the first £12,570 is free, the next £37,700 at 20%, then 40%. The State Pension uses up most of the allowance on its own, so what you draw from a pot is mostly taxed at 20%. The good news: there is no National Insurance on pension income, and 25% of each pension withdrawal can be tax-free.

Figures for the 2026/27 tax year · Published 2 October 2026

People plan their spending after tax and their pension in gross terms, then wonder why the two don’t meet. This is the bit in between. The figures are for the 2026/27 tax year in England, Wales and Northern Ireland; Scotland has its own bands, which we cover at the end.

The bands you need

• Personal allowance: £12,570, frozen until April 2031.
• Basic rate: 20% on the next £37,700 (up to £50,270 of total income).
• Higher rate: 40% from £50,270 to £125,140.
• Additional rate: 45% above that.
• No National Insurance on pension income, rental income or savings interest, whatever your age.

Because the allowance is frozen while the State Pension rises with the triple lock, the full new State Pension (£12,548 in 2026/27) now eats almost the whole allowance. Everything else you draw is taxable from the first pound.

The worked example

Jo is 68, single, with the full State Pension and a pension pot in drawdown. Jo wants £2,500 a month after tax, £30,000 a year.

• State Pension: £12,548. Tax on it: nothing, because it sits inside the £12,570 allowance. £22 of allowance left.
• Needed from the pot after tax: £17,452.
• If Jo takes each withdrawal as 25% tax-free and 75% taxable (the UFPLS approach), a withdrawal of £20,530 gives £5,133 tax-free plus £15,397 taxable; £22 of that is covered by the leftover allowance and the rest taxed at 20% (£3,075). Net: £17,455. So roughly £20,500 a year gross from the pot for £17,450 in hand.
• Total gross income: about £33,000. Total tax: about £3,100. Effective rate: 9.3%.

If Jo had taken all the tax-free cash as a lump sum at the start instead, every later withdrawal would be fully taxable: £21,800 gross for the same £17,450 net, £4,350 of tax a year, and a lump sum sitting in a bank account earning taxable interest. Which is better depends on what the lump sum was for. Our tax-free cash guide goes through the options.

Why a couple pays so much less

Tax is personal, not per household. Two people each have a £12,570 allowance and a £37,700 basic-rate band. A couple wanting £50,000 a year after tax between them, drawn evenly from taxable income, pays about £6,200 in total tax. One person drawing the whole £50,000 the same way pays about £12,400: twice as much. That is why it is worth building up both partners’ pensions during working life, even if one earns much more, and why Isaac models two people, two allowances and two pots rather than one lump.

Four things that push the bill up

• A big one-off withdrawal. Taking £60,000 out in one tax year to buy a car or clear a mortgage pushes most of it into the 40% band. Spread across two tax years, or taken partly as tax-free cash, it can cost half as much.
• Final salary pensions. A £20,000 defined benefit pension plus the State Pension already uses the allowance and £20,000 of the basic band before you touch a pot.
• Rent. Rental profit is taxable income with no NI, and from April 2017 to 2020 the rules changed so that mortgage interest on a let property only earns a 20% tax credit rather than a full deduction, which hurts higher-rate taxpayers.
• The £100,000 taper. Above £100,000 of income you lose £1 of personal allowance for every £2, an effective 60% rate between £100,000 and £125,140. Rare in retirement, but it bites in the year a large lump sum lands.

Scotland

Scottish taxpayers (where you live, not where the pension comes from) have six bands in 2026/27: starter 19% to £16,537, basic 20% to £29,526, intermediate 21% to £43,662, higher 42% to £75,000, advanced 45% to £125,140, and top 48% above. On Jo’s income the difference is small: about £40 a year less, thanks to the starter band. On £60,000 of taxable income it is about £1,750 a year more.

The short version

Take your after-tax spending, subtract your State Pension and any final salary income, and the rest has to come from pots. Expect to gross that up by about 15–20% if you take tax-free cash as you go, or 25% if you have already spent it. Keep each person’s income inside their own bands, spread big withdrawals over tax years, and check the number every April when the figures move.