Lump sum tax

dseanc

If one contributes to a private pension using one's own (taxed) earnings, why is it  that, when a whole (lump sum) amount is withdrawn, it is taxed again?

Albermarle

Because when you contribute to a pension with taxed income , you get tax relief.
If you contribute £80 from your net (taxed ) pay , £20 of tax relief will be added so there will be £100 in your pension .
When you take the pension , 25% is tax free and the rest taxable, normally at 20% so you get £85 overall .
A gain of £5 or 6.25% so a pension is tax friendly 
This 6.25% is really a minimum . If you pay higher rate tax as an earner and/or pay no tax when you take the pension , the benefit is a lot higher .

dunstonh

dseanc said:

If one contributes to a private pension using one's own (taxed) earnings, why is it  that, when a whole (lump sum) amount is withdrawn, it is taxed again?

When you contriubte to the pension you get the tax you paid in income refunded to you in the tax relief.   So, effectively the money going in wasn't taxed.    When you draw it out only 75% of it is taxed.