Pension drawdown tax calculator: what you keep after tax
Updated 7 October 2026. Figures checked against official sources on 7 October 2026.
When you take money from a pension, usually a quarter is tax-free and the rest is added to your other income and taxed. The calculator works out the tax every year of your retirement, including when the state pension starts and uses up most of your tax-free allowance.
Worked example: someone retiring at 63 with £670,000 in a pension and an ISA, taking home £40,000 a year in today's money. From 88, your income falls short of the £40,000 a year you want.
Worked example
From 88, your income falls short of the £40,000 a year you want.
- Age now
- 62
- Retire at
- 63
- Pots
- £670,000
- Take-home wanted
- £40,000 a year
- Plan until
- 95
The first year, step by step
To take home £40,000 in the first year, the plan draws £44,173 from the pension. £11,043 of that is tax-free and £33,130 is taxable. The income tax is £4,173, an effective rate of 9.4% on the money drawn.
How pension withdrawals are taxed
- Tax-free part. Up to 25% of each pension, either a quarter of every withdrawal or all at once, with a limit of £268,275 across all your pensions.
- Taxable part. Added to your state pension, any earnings and other income, then taxed with your £12,570 personal allowance and the 20%, 40% and 45% bands. The allowance shrinks above £100,000.
- Frozen thresholds. The calculator keeps the allowance and bands frozen until April 2031, then lets them rise with inflation.
The state pension and your allowance
The full new state pension for 2026/27 is £241.30 a week, about £12,548 a year. That leaves £22.40 of the £12,570 personal allowance, so once the state pension starts almost every pound drawn from a pension is taxable.
Scotland
Scottish taxpayers pay Scottish rates on pension income: 19% starter, 20% basic, 21% intermediate, 42% higher, 45% advanced and 48% top. Tick "I pay Scottish income tax" in the calculator. In this example the first year's tax would be £4,179 in Scotland, and tax over the whole retirement £97,101 compared with £96,254.
Emergency tax on a first withdrawal
Providers often take tax on a first flexible withdrawal using an emergency tax code, so more can be deducted than you finally owe. The overpaid tax can be claimed back: form P55 for part of a pot, P53Z if a whole pot is emptied while still working, or P50Z if it's emptied after stopping work. The calculator marks the first taxable withdrawal in the year-by-year table.
Paying in after taking taxable money
Taking taxable money from a pension pot usually cuts the yearly amount you can pay into pensions with tax relief to £10,000, the money purchase annual allowance. Taking only the tax-free cash doesn't.
Questions people ask
How much tax will I pay on a £20,000 pension withdrawal?
If it's taken straight from the pension with a quarter tax-free and you have no other income, the tax is £486. If you also get the full state pension, the same withdrawal adds £2,996 of tax. These use 2026/27 rates for England, Wales and Northern Ireland.
Why was so much tax taken from my first pension withdrawal?
Providers often use an emergency tax code on a first flexible withdrawal, which can deduct more than you owe. You can claim it back with form P55, P53Z or P50Z, depending on your situation.
Are Scottish taxpayers taxed differently on pension withdrawals?
Yes. Pension income is taxed at Scottish rates for Scottish taxpayers, from 19% to 48%. Savings interest is still taxed at UK rates.
Does the state pension use up my personal allowance?
Almost all of it. The full new state pension of £241.30 a week leaves £22.40 of the £12,570 allowance in 2026/27.
Does taking taxable money from my pension limit what I can pay in?
Usually yes. Pension payments with tax relief are then limited to £10,000 a year, including employer payments. Taking only tax-free cash doesn't trigger this.
How can I pay less than 40% tax on pension withdrawals?
The bands themselves set the rate: 40% applies to taxable income above £50,270 in 2026/27. The calculator's tax-smart order shows how drawing from pensions up to the 20% band and using tax-free pots above it compares with your own order.
Sources
Rates and rules were checked against these on 7 October 2026. Worked-example figures come from the calculator, using 2026/27 tax rules.