UK pension income is money paid to you from a pension: the State Pension, workplace and personal pensions, annuities and drawdown. Retirement income is wider.
For a defined contribution pot, Pension Wise from MoneyHelper is free, impartial and government-backed, and explains the ways to take the money. Adding several pensions and other money together for tax is fiddly. The form on this page needs a name and a mobile or landline, and the callback from an FCA-authorised firm's adviser costs you nothing.
What counts as pension income in the UK?
The tax law is Part 9 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA). Section 566 defines pension income as "the pensions, annuities and income of other types" that the chapters of Part 9 cover, and that list includes section 577 on UK social security pensions, which the Act says applies to the state pension.
For pensions paid from a registered pension scheme, HMRC's Employment Income Manual says the term includes:
- annuities bought with money from a registered scheme (see how a pension annuity works);
- drawdown pensions, where the pot stays invested and you take income from it (see pension drawdown);
- scheme pensions, which the manual names with lifetime annuities and drawdown as the 3 main types of authorised pension, and says can come from a defined benefit or a money purchase arrangement.
In everyday terms, the State Pension, an employer's final salary or career-average pension, and a pot you turn into regular payments all count. So does any Additional State Pension. How the State Pension itself is built is in the State Pension guide.
How is pension income taxed?
Pensions are treated as income, and it is your total income across the tax year that decides the bill. GOV.UK gives the Personal Allowance as usually £12,570, and the bands differ for Scottish taxpayers. Under that total, the State Pension is not a separate case: it is one more line.
The lines GOV.UK lists as taxable income are the basic or new State Pension, any Additional State Pension, a workplace or personal pension, pay from a job or self-employment, taxable benefits, and other income such as rent, savings interest and investments.
How the tax reaches HMRC differs by type:
- Private and workplace pensions. Most providers use PAYE, so each payment arrives with tax already taken off. A P60 after the year ends shows the total.
- State Pension. It is paid gross, with nothing deducted first. Where it is your only income and you pass the Personal Allowance, HMRC issues a Simple Assessment bill. Where a pension provider or employer is also paying you, the tax code is usually adjusted so the tax is collected there.
For a registered scheme pension, section 579B bases each year's taxable amount on what accrues in that year, whenever it is actually paid. The wider pension tax picture is in pension tax, and tax on drawdown covers income from a pot.
What is not pension income?
The tax-free lump sum is the main example. GOV.UK puts the tax-free part at usually no more than 25% of what a pension has built up, capped at £268,275 for most people (a protected allowance may raise it), and says this leaves your Personal Allowance untouched. What you draw from the remainder is taxed as income. The tax-free lump sum guide covers the detail.
Two more limits are worth knowing:
- Any part of a lump sum above the lump sum allowances is charged to Income Tax; GOV.UK's tax guide links the current allowances.
- HMRC's manual says an "unauthorised payment" is not taxable under the pension income provisions in Part 9; separate tax charges apply to it.
For Pension Credit, separate rules decide which income counts: see which income counts for Pension Credit.
What else counts as retirement income?
"Retirement income" is the whole picture of what you live on, and the pension is only one part. GOV.UK's retirement planning guide says you might need more money than just the State Pension when you retire. Other sources include part-time work, rent from a property, savings interest and investment returns, and taxable benefits. These are taxed as income too, which is why they sit in the same total.
So your pension yearly income is a two-step sum: add up each pension, then everything else coming in, and compare the total with the Personal Allowance. To see how much you might need, read how much pension you need and planning retirement in the UK; to check what you are on track for, see pension forecasts.
Mixing sources is where tax gets awkward, since a lump sum, a part-time wage and a State Pension can all land in the same tax year. Whether the State Pension is enough on its own is a good place to test your own mix.
Pension income questions
Is the State Pension counted as pension income?
Yes. It sits within Part 9 of ITEPA as a UK social security pension, and GOV.UK includes it in taxable income. Whether you owe tax on it depends on your total income. See whether the State Pension is taxable.
Is a pension the same as retirement income?
No. A pension is one source of retirement income. Savings, rent and earnings can feed the same yearly total.
Which document shows the tax my pension provider deducted?
The P60 your provider sends after the tax year ends. If it looks too high, the pension tax refund guide explains what to do.
Does pension income go on a tax return?
For anyone who files Self Assessment, yes: GOV.UK says State Pension and private pension income must both be included. Whether you have to file at all depends on your circumstances.
How long will pension income last?
It depends on the type: HMRC's manual says a lifetime annuity must be payable for the rest of your life, while a drawdown pot can be drawn down to nothing. How long a pension lasts goes through it.
When pay, a State Pension and a pot all land in one tax year, an adviser can say which part is taxed; the request-a-call form here is free to use.