How much pension can I take tax-free each year?

Two things make pension money tax-free: a quarter of each withdrawal (up to £268,275 in total), and your personal allowance of £12,570, which covers the first part of your taxable income.

Put together, before the state pension starts you can take up to £16,760 a year from a pension and pay no income tax, if it's your only income. After the state pension starts, almost nothing more.

The sums

• Before the state pension: the taxable three quarters of each withdrawal uses your £12,570 allowance. £12,570 ÷ 75% = £16,760 a year with no income tax.
• After the state pension: the full new state pension of £12,548 a year uses almost all of the allowance, leaving £22. So only about £29 more can come out tax-free each year. Beyond that, the taxable part is taxed at 20% up to £50,270 of income.
• The personal allowance and bands are frozen until April 2031, so as the state pension rises, more pension income is taxed.

A worked example

Someone retiring at 60 draws £16,760 a year from a pension and pays £0 income tax. From 67, with the state pension, a £24,000 income before tax pays £232 a year.

If you take the 25% in one go

Taking all the tax-free cash at once means every later withdrawal is fully taxed. Then only your personal allowance is tax-free each year, £12,570 before the state pension. See taking 25% tax-free cash.

Tax on a first withdrawal

Providers often take emergency tax on a first withdrawal, even when none is due. See emergency tax on a pension withdrawal.

Try the calculator with your own figures. The Tax and other income step takes your tax code.