Do you have to pay tax on pension?

Mado

Sounds like a very dumb question, but do you pay tax on pension when you retire?

I understand the issue won't arise from state pension.... but in a final salary plan, where pension can be quite generous, would you have tax deducted from it?

dunstonh

The income from a pension is taxable subject to your personal allowances.

So, currently, if 65, you can earn £7090 without paying any tax, then £2090 at 10%, then the rest at 22% until higher rate tax band.

If you income (including deposit accounts) takes you above £19,500 you can also start paying a bit more tax as the age allowance starts being taken away from you.

EdInvestor

All pensions are subject to tax including the state pension.The only difference is that company and private pensions are taxed under PAYE and the state pension is paid out without a deduction. But you will have to fill in a tax return and pay tax on the state pension if it is due.

Income and capital from ISAs by comparison is tax free.

dunstonh

Income and capital from ISAs by comparison is tax free.

Although the tax free income would be lower than the taxable income on a pension.

EdInvestor

dunstonh wrote:

Although the tax free income would be lower than the taxable income on a pension.

Even if true, a slightly higher income can hardly compensate for loss of access to three quarters of your capital trapped in the pension.

dunstonh

Even if true, a slightly higher income can hardly compensate for loss of access to three quarters of your capital trapped in the pension.

I'm sure that you will be worrying about it when you are dead.

It the current underfunding for retirement continues, then maximising income will be the priority for most. Not how much they can pass on to the children.

Cook_County

It is indeed worrying when two IFAs try to give tax advice!

Tax questions would better be directed at the tax forum where qualified tax advisers would be more likely to see them.

It would be useful to answer what the questioner has asked.

Pensions paid from company plans do indeed have tax deducted from them. However one could usually choose at the start to take part of the payments as a tax-free lump sum and a slightly smaller pension. The first place to start is with the admininistrators of the plan, who can probably explain quite clearly what the options are.

dunstonh

It is indeed worrying when two IFAs try to give tax advice!

And what is wrong with the information that has been posted so far?

Andy_L

ts_aly2000 wrote:

This sounds like a right givernment scam. So you pay tax on your earnings, which you use to pay a pension. Then you pay tax on your pension when you get your earnings back.

You are incorrect, you receive the tax back on money you save in a pension.

EdInvestor

Cook_County wrote:

It is indeed worrying when two IFAs try to give tax advice!

Two?

I trust you're not referring to me.

whiteflag_3

EdInvestor wrote:

Two?

I trust you're not referring to me.

You obviously display the traits spotted by your good mate Reportinvestor

Originally Posted by ReportInvestor
I was making that mistake. And yet you seemed to have many of the qualities that ilk. However your good mate has deleted this post and replaced it with something completely different (again) :rolleyes:

At least the IFAs on this site are consistent!

Just wish I stuck in at school and I could have been an accountant